May 13 2013 – The Rules of Unpaid Internships

The Rules of Unpaid Internships

In South Carolina this past weekend, college students proudly marched across the graduation stage ready to enter the next stage of life.  However, with the job market still tight, many of these students may be struggling to find employment.  That means, your business may soon be approached by students looking to acquire some experience in the workplace.  An internship can be an attractive option for both the student and the employer, but there are a few things to be aware of when instituting such a program, especially if it is an unpaid position.

The Department of Labor (DOL) has made the rules and regulations regarding internships very clear, and businesses that use internships as a form of unpaid labor may be targeted for review.  According to the National Association of Colleges and Employers, “an internship should be a form of learning that integrates knowledge and theory learned in the classroom with practical application and skills development in a professional setting.”

The DOL Wage and Hour Division has published a set of guidelines to assist employers and interns entitled “Fact Sheet No. 71: Internship Programs Under the Fair Labor Standards Act.”  The information found in Fact Sheet No. 71 is designed to help companies determine if their intern must be paid minimum wage and overtime in accordance with the Fair Labor Standards Act (FLSA).  The DOL identified six factors that must be taken into account when a company is determining if someone qualifies as an intern or an employee:

1.       The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2.       The internship experience is for the benefit of the intern;

3.       The intern does not displace regular employees, but works under close supervision of existing staff;

4.       The employer who provides the training derives no immediate advantage from the activities of the intern; and on occasion his operations may actually be impeded;

5.       The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.       The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all these elements listed above are met, an employment relationship does not exist under the FLSA, and minimum wage and overtime provisions do not apply. To adhere to the DOL guidelines for unpaid internships, Collins & Lacy suggests the following steps be taken:

1.       It is strongly recommended the potential intern not be a former employee. Your intentions may be honorable and the employee may be willing to work for free, but the appearance of a former employee working as an intern could be too great for the DOL to overlook.

2.       Create an internship program with written criteria, including the opportunity for the intern to observe and participate in all aspects of the company. Putting an intern in the mailroom for the summer would not classify as an internship.

3.       When approached by an intern who is looking for experience to further their studies, request that the student apply for educational credit. Ask the intern to get permission from a faculty member who will require the student to report back to them at the end of the internship. This will further highlight the internship was for educational purposes;

4.       Have the intern sign an internship agreement that shows he/she realizes he will not receive pay.  The agreement should also state that the company is receiving no immediate advantage from the activities of the intern, the employer and the intern understand the intern is not necessarily entitled to a job at the conclusion of the internship and the internship is for the benefit of the intern ; and

5.       Do not allow a supervisor or manager to utilize an intern in place of a missing employee. This will be viewed as structured work and more likely to be considered an employee entitled to wages for the time spent.

6.       Finally, consult your local employment attorney with questions regarding internship programs.

Following the DOL guidelines and the above suggestions on how to implement them may protect businesses offering unpaid internships from any legal ramifications. Moreover, if done correctly, an internship can be an exciting and rewarding experience for both the company and intern.