There's a great advantage to creating an internship program. Not only does it help you build your brand in the community, but it also creates goodwill and builds a pipeline for talent.
Are you thinking of hiring a summer intern? Before you start posting your position at schools, you should know the United States Department of Labor (DOL) has specific rules governing internship programs. Read on to find out more.
Are All Internships Unpaid?
The primary risk for employers who want to create an internship program is assuming incorrectly that you can hire the intern on an unpaid basis. When structuring an internship, you want to make sure before you start recruiting, the internship can, in fact, be unpaid if that's your intention.
"Unpaid internships that don't comply with federal and state Wage and Hour laws can pose a liability for unpaid wages to the intern and also liability to tax authorities for unpaid employment taxes," says attorney Gary Savine of Savine Employment Law, Ltd.
Businesses that intend for internships to be unpaid should, at a minimum, check to see if the internship meets the DOL's test for exempting unpaid internships from the wage and hour laws.
What Is the Seven Factor Test?
The DOL has a Primary Beneficiary Test that analyzes the seven facets of the relationship to determine whether you or the intern is the primary beneficiary of the relationship. It focuses on the educational aspects of the internship. The seven factors are:
- Compensation. You should make certain the potential intern understands there should be no expectation of compensation.
- Training. The training the student receives should be similar to that which that person would receive in an educational environment. Think about the educational value of the tasks interns will do. They should be substantive, like research assignments, rather than grunt work like getting coffee. The tasks should be in line with what the intern is studying.
- Curriculum. "It's best to hire interns who are already enrolled in a program and can receive academic credit for the internship. This takes some pre-planning," explains Savine. You should reach out to local schools and universities before you offer an internship to gain guidance on what an intern needs to learn and how the internship should be structured so credit can be earned.
- Academic Calendar. How friendly is the structure of the internship with regard to the student's school year? Will the internship conflict with the school calendar and prevent the intern from going to school? It shouldn't if you want the internship to qualify for unpaid status.
- Learning Duration. The internship should have an end. You should have specific experiential learning goals set for the intern, so when the beneficial learning of the intern is complete, the internship is complete. "If the internship is excessive in comparison to what you would expect the length of time would be for someone to get a learning benefit out of [the internship]," Savine says, "you're going to have a problem."
- Employee Displacement. Internships are not a money-saving tactic. The intern's work should complement paid employees' work rather than displace someone.
- Employment Expectation. You want to make certain the intern understands that the internship has no promise of leading to a paid job at the end.
A best hiring practice would be to lay out the details of the internship with the seven factors in mind, so it's clear on the face of the offer that the internship would satisfy the requirements of an unpaid internship. "[You are] also well-served to get an intern's written acknowledgment on the offer," Savine advises.
What Are Some Hiring and Selection Best Practices?
The usual best practices may or may not apply to interns. "Generally, because anti-discrimination statutes protect employees, current federal anti-discrimination laws do not apply to individuals holding internship positions unless the intern is deemed to be an employee," explains Matthew Stefany, senior associate attorney with Allen Norton & Blue, P.A. To apply, an unpaid intern would have to receive some type of significant remuneration such as insurance, pension benefits, workers' compensation, etc.
"Minimal compensation or academic credit may not be considered 'significant remuneration,'" says Kristie Scott, founder and managing attorney at Light Path Law.
According to Scott, unpaid, or paid interns could be considered employees if:
- Their work is required for regular employment or regularly leads to paid employment with the same employment institution, or;
- The employer controls the means and manner of the intern's work performance.
"The analysis for paid interns is much more complicated and requires a review of all aspects of the intern's relationship with the employer," Stefany says. "Courts have struggled to develop a universal test for who qualifies as an employee, but a variety of factors must be considered, primarily focusing on the purpose of the internship and whether the employer controls the means and manner of the intern's work performance."
Does Immigration Status Make a Difference?
Even whether I-9s need to be filled out is up in the air for unpaid interns. "Form I-9 is required to be completed for any individual hired for employment in the United States," explains Scott. "Therefore, if the intern is receiving paid compensation from the company, they should complete an I-9."
For unpaid interns, it depends upon whether they receive something "of value" or remuneration. "Remuneration can come in many forms, such as money, meals, lodging, and other benefits, but does not include gifts. If the company determines that unpaid individuals will receive something of value in exchange for their labor or services, the I-9 should be completed."
Should Interns Be Compensated?
"The Fair Labor Standards Act (FLSA) requires 'for-profit' employers to pay employees for their work. Interns and students, however, may not be employees under the FLSA—in which case the FLSA doesn't require compensation for their work," says Scott. "Whether the intern will be considered an employee is based upon the (above) Primary Beneficiary Test." If the intern is found to be an employee, then the intern will be entitled to receive minimum wage.
"As to whether state minimum wage laws apply to internships, it depends on the state," Scott says. Stefany advises that "employers should consult their legal counsel with questions on these issues as misclassification of interns can trigger consequences under the FLSA as well as implicate other employment-related statutes." He advises employers to read the DOL's Fact Sheet on Internship Programs for more information.
Should an Intern Make Market Rate?
If you are meeting the minimum threshold under wage and hour laws, i.e. minimum wage and overtime for nonexempt (hourly), the minimum salary for exempt, you are in good shape.
"As a legal matter," Savine says, "with limited exceptions, you can pay [a paid] intern what you want, but a paid intern is probably more likely than unpaid interns to be selected for purposes of long-term recruitment. If that's the case, you probably want to consider paying the market rate for the internship to effectively recruit talent."
You'll also want to make sure you pay consistently across groups of paid interns who perform similar work, so you don't run afoul of any applicable local, state, or federal anti-discrimination laws, Savine recommends.
What Are Some of the Problems of Internships?
The primary problem of an internship comes when you haven't carefully thought out how to structure the internship program. When this happens, those charged with overseeing interns may not align the intern's responsibilities with legal requirements.
"There's a risk when organizations don't have structured programs, and managers are loose with the way they oversee interns," Savine warns.
"Unpaid internships can easily lose eligibility for the exemption from Wage and Hour laws and trigger a duty to pay the interns. Everyone involved—managers, coworkers—should be aligned and disciplined around how they're going to manage the internship to ensure the business doesn't unexpectedly violate Wage and Hour or other employment laws," he says.
While the benefits of having an internship program may outweigh the risks, it's important to remember the DOL and the courts differ on how much weight any of the seven factors should be given, so status is subjective. Because it's subjective, it's risky to take on an intern, and it's important for employers to think carefully about this and get counsel before they move forward.