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March 1, 2010

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Thinking about hiring an intern? Businesses should take note of Department of Labor reminder that most interns must be paid minimum wage

 

SUMMARY

 

Does your company have unpaid interns or interns who are paid a stipend instead of a salary or hourly rate? If so, you may be violating federal wage and hour requirements. Claims by interns are rare, but a Fact Sheet issued by the U.S. Department of Labor’s Wage and Hour Division last week is a reminder that in most cases, interns must be paid minimum wage (plus overtime if they work more than 40 hours in a week). A copy of the Fact Sheet is available here.

 

The fact is that interns are presumed to be employees. To defeat this presumption, a for-profit company must establish 6 criteria, including that the internship is similar to training that would be given in an educational environment, that the intern does not displace regular employees, and that the company does not derive any immediate advantage from the intern’s activities. That an intern is receiving educational credit for the internship is not, in and of itself, sufficient. If a company cannot establish all 6 factors, the intern is considered to be an employee and must be paid in accordance with the federal Fair Labor Standards Act.

 

ACTION ITEMS

 

  • Use the 6 factor test to determine whether an internship must be paid before offering it as an unpaid or stipend-only position.
  • Have the intern acknowledge in writing that the internship is unpaid or stipend only and that his or her duties meet the 6 factor test.
  • Don’t assume that an intern who is receiving college credit doesn’t have to be paid.
  • Don’t allow unpaid or stipend-only interns to do clerical or customer service work (including filing and phone answering), or to fill in for employees who are on vacation or to meet seasonal needs.
  • Be very clear with interns regarding their duties and your expectations.
  • Never suggest that the intern will be entitled to a job at the conclusion of the internship.

 

 

DISCUSSION

 

Internships are a regular part of the business cycle. Students rely on internships to obtain critical work experience. Businesses rely on interns to close the gap without increasing payroll. But most companies don’t realize that a student or recent graduate can’t just agree to work for less than the minimum wage.

 

A fact sheet released by the U.S. Department of Labor last week reiterates how difficult it is to overcome the presumption that interns must be paid in accordance with the Fair Labor Standards Act (“FLSA”). In order to classify an intern as a “trainee” instead of an “employee,” the internship needs to satisfy all of the following six criteria:

 

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

 

If all six factors are met, the intern is not an employee and the FLSA’s minimum wage and overtime requirements do not apply.

 

There are certain facts that go a long way toward establishing some of the 6 criteria. For instance, 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. Likewise, if the intern is being provided with general skills that could be used in multiple employment settings, it is more likely that the first and second criteria will be satisfied.

 

On the other hand, there are facts that make it unlikely that the intern will qualify as a “trainee.” Where 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 company will generally be unable to satisfy the third and fourth factors. Similarly, if the company would have to hire another employee in order to perform the work that the intern is handling, the intern is most likely an employee.

 

Claims by interns are rare, but they can and do arise. Where an intern or former intern raises a claim, or where a governmental agency or a plaintiffs’ attorney raises an inquiry, the business may be liable for unpaid wages plus liquidated damages, as well as penalties under state and local law. The company may also face liability for failing to make employment tax payments, contributions and withholdings on the intern’s behalf.

 

Before you hire an unpaid intern (or one who will be paid a stipend), think critically about the internship. Ask what the intern will be doing, and who would have been doing it otherwise. Ask how the business will benefit from the internship. Ask whether the internship is truly educational. If your analysis reveals that the internship does not satisfy all 6 factors, either change the internship or pay the intern in accordance with the FLSA.


Filed under: Employment & Executive Compensation

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