Hiring college students or recent graduates for internships is common for many types of businesses, which provide real-world experience, often in lieu of a paycheck.
In some cases, however, interns must be paid, and the Fair Labor Standards Act provides regulations for making that determination.
The Department of Labor’s Wage and Hour Division is planning to take a closer look at businesses that employ interns because of the common misperception that all interns can work for free.
Companies should also remember that it only takes one anonymous phone call to the DOL to initiate a Wage and Hour Division audit of pay practices.
An intern classified as a trainee in a training program does not have to be paid, but if the intern is actually classified as a nonexempt employee, payment is required. The FLSA requires companies to pay minimum wage to interns who are nonexempt employees for up to 40 hours a week and overtime for every hour more than 40 during a workweek.
The FLSA defines “employ” broadly, and the explanation contains the phrase “suffer or permit to work.” The Supreme Court has held that the term “suffer or permit to work” isn’t applicable if the interns’ “work” serves only their interest and the others involved are providing aid or instruction. This ruling may be valid for interns who obtain training for their personal
In order for the work to be considered training, six criteria must be met:
• The internship must be comparable to training provided in an educational setting. The law does recognize the intern will provide assistance with company operations. However, interns should not carry out the day-to-day tasks of the firm on a regular basis, to the point that the company has to rely on interns’ efforts. The company should be providing skill sets applicable to several business settings.
• The internship experience must be for the benefit of the intern, not the organization.
• Interns may not take the place of a staff member or in lieu of hiring more associates or requiring existing team members to work overtime. Interns must perform their duties under careful supervision of current employees and not in a manner similar to how employees are supervised.
• The employer may not gain any immediate benefit due to his duties, and the statute notes that at times, interns will most likely hinder business operations as they learn.
• Intern trainees are not automatically guaranteed a position with the company once the internship ends.
• Both the company and the intern must know that the intern is not entitled to wages during the internship period. The timeframe for the internship should be decided prior to an intern’s start date, and internships should not be a trial period to determine whether the intern will be chosen for employment.
The intern is considered an employee under the FLSA unless all six parts of the internship test are met. The Department of Labor will decide if an internship meets the six criteria on a case-by-case basis. Companies that are not in compliance have liability for unpaid wages and imposed fines. The potential liability from the IRS for not paying the required employment taxes is also significant.
Companies should review each internship separately and determine if a true employment relationship exists or not. If not, thorough documentation should be prepared that justifies the decision. Goals, job duties and expectations of both the intern and company should be detailed, and signatures should be obtained.Lynne Haggerman, M.S., is president/owner of Lynne Haggerman & Associates LLC, a Springfield firm specializing in management training, retained search, outplacement and human resource consulting. She can be reached at email@example.com.