Running Your Business: Should Your Interns Be Paid?

Running Your Business: Should Your Interns Be Paid?

Summer is a time for sun, fun … and interns. Interns are an integral part of many companies, especially now when businesses are trying to do more with less. What many companies don't realize is that interns can't simply agree to be unpaid or to be paid a stipend that is less than the minimum wage. In fact, most interns at for-profit businesses must be paid minimum wage. A company that wrongly fails to pay an intern may face claims from the intern and government agencies for unpaid wages, failure to withhold and pay employment taxes, and failure to contribute to unemployment programs, among other claims.

As discussed in a Fact Sheet issued by the U.S. Department of Labor's (DOL) Wage and Hour Division this spring, an intern legally can be paid less than the minimum wage only if the company is able to establish that he or she is a ""trainee"" rather than an ""employee.""

The six criteria for establishing ""trainee"" status are:　

1. The internship is similar to training that would be given in an educational environment;

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

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

4. The company providing the internship derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;

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

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

The DOL takes the position that unless all six of these criteria are met, the intern must be paid minimum wage. While these criteria are not new, the Fact Sheet serves as a good reminder of what it takes to properly classify an intern as a ""trainee"" and suggests that the DOL may be beefing up its enforcement efforts in this area.

It is important that companies with interns weigh their internship programs against the six criteria to determine whether these factors are satisfied.

Here are some tips for determining whether your company's interns are ""employees"" or ""trainees.""

• Don't assume that because an intern is receiving credit for the internship, he/she can be unpaid. If the internship is part of a college or university program that provides credit, it is likely that the internship will be deemed to meet the first and second criteria. But that isn't the end of the inquiry. Credit, in and of itself, is not sufficient to establish that the intern is not an employee.

• Consider the tasks the intern is performing. When an intern is engaged in the company's operations, is performing productive work (such as answering phones, filing or responding to customer inquiries), or is filling in for employees who are out of the office, the intern likely will need to be paid.

• Ask yourself, if you didn't have the intern, would you need to hire an employee (or have existing employees work more hours) to cover the work. If the intern is performing work that otherwise would be performed by employees, chances are the intern will be deemed to be an employee.

• Exercise caution if the unpaid internship is in lieu of a probationary or introductory period. In situations where there is an expectation that the intern will become an employee at the conclusion of the internship, it will be difficult to establish that the intern is a ""trainee"" who need not be paid minimum wage.

• Confirm that the intern understands that the internship is unpaid. While an intern can't agree to be unpaid, if a company is to establish that the intern is not an employee, it will need to demonstrate that the intern understood and agreed to his or her unpaid status.

So what should businesses with interns do? If, after analyzing your internship program, you determine that the six criteria are met, consider having the intern sign an acknowledgment of some of the key factors in your determination, including that the internship is for the intern's benefit; a description of the intern's duties; and the fact that the internship will be unpaid.

If, on the other hand, the criteria are not satisfied and you want to come into compliance, you have two choices: pay the intern minimum wage, or change the internship so that it satisfies the criteria. Of course, changing the internship so that it meets the criteria may defeat the benefit your business was looking to derive from the intern in the first place. The more straightforward approach is to pay the intern the minimum wage ($8.25 per hour in Illinois as of July 1, 2010, plus time and a half for overtime).

Before retaining an unpaid intern (or one paid less than minimum wage), think critically about what the intern will be doing for your company and whether the internship satisfies the six criteria. Claims by interns are rare, but there is significant exposure for companies that wrongly retain unpaid interns. Don't rely on short cuts or past practice in deciding to add an unpaid intern. Make sure that your decision whether or not to pay an intern is an educated one.