Internships: To Pay Or Not To Pay, That is the Question…

Contributed by Julie Proscia

At the change of each season, companies become inundated with requests for internships from hopeful college students. Unpaid internships are a great opportunity for both the employer and the intern to receive valuable assistance and experience, but can subject the company to liability if not administered correctly. If administered incorrectly the hopeful doe-eyed unpaid intern can quickly turn into a green-eyed plaintiff looking for back wages and unpaid overtime.

So how can companies administer the unpaid internship program correctly and not subject themselves to liability? The basic principle behind a legal unpaid internship is simple; unpaid interns cannot do any work that contributes to a company’s operations. This includes any tasks that predominately help you run your business, like documenting inventory, filing papers, answering emails, etc. These principles are for “for profit” organizations and not applicable to “not-for-profit” entities.

So what does that leave? Unpaid interns are allowed to shadow other employees and perform duties that don’t have a business need. The Department of Labor has developed six factors that should be used to determine whether the hiree will be performing the work of a true unpad intern or the work of an employee. ALL six factors must be met in order for an internship to be properly classified as unpaid. If any of the six factors are not met the intern is designated as an employee.

So what are the factors?

  1. The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
  2. The training is for the benefit of the trainee;
  3. The trainees do not displace regular employees, but work under close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded;
  5. The trainees are not necessarily entitled to a job at the completion of the training period; and
  6. The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

If an intern fails to meet any of the six factors they should be paid minimum wage for all hours worked and overtime if overtime is applicable. It is also prudent to require that the intern receive college credit and conduct their internship through an approved program at their school or university. The latter will not absolve the company from wage and hour liability, if the factors are not met, but will go along way to protect the employer if questions are raised. In a 1988 Opinion Letter, the DOL stated that students would not be classified as employees if the internship programs were “designed to provide the students with professional experience in furtherance of their education and training and are academically orientated for their benefit.”

So what is the answer to the question of “to pay or not to pay?” It depends. It depends on what type of work that the intern will be performing and what the company’s goal is regarding the internship. If the goal and the reality is to have an individual perform routine type of tasks then it is better to pay the individual minimum wage. In either aspect, whether paid or unpaid, are a great way for a company to have an trial period with a potential employee and catch the next brilliant star before they rise with another company.