Paid vs. Unpaid Internships

Paid vs. Unpaid Internships

‘Tis the season for internships. Every summer thousands of young people descend upon the working world to gain some experience, network a little and get a little on-the-job training for their future careers. Internships are a fantastic opportunity for students to learn and for employers to get a little cheap, or free, labor.

Well, maybe not.

The United States Department of Labor and through a series of agreements with the states, the state labor departments are cutting down on unpaid internships, particularly at for-profit companies. The effort has been on-going for nearly five years, but every year it seems I get questions about whether a company has to pay their interns or not. The U.S. Department of Labor looks at six factors to determine whether an internship at a for-profit company can be an unpaid internship.

1. The internship, even though it includes actual operation of the facilities of the employer, 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 employer that provides the training 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 employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If an internship meets all six criteria, it is likely to be properly an unpaid internship. Some additional consideration for employers to consider when dealing with interns.

  • Interns in the non-profit and government sectors may not have to be paid. The Department of Labor wants to encourage individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations. The key here is non-profit organizations.
  • If an employer would have hired additional employees or required existing employees to work more hours but for the existence and availability of interns, the chances are the hiring of interns would be considered paid internships and required the payment of at least minimum wage.
  • In the for-profit world, the more the intern’s work and effort benefit the employer through productive work, the more likely it is that the intern is an employee and therefore entitled to be paid properly.
  • The more a for-profit employer structures an unpaid internship program around a classroom or academic experience as opposed to the employer’s actual operations, the less likely the internship will be viewed as employment. There is no good rule of thumb of “classroom work” vs. “operational work,” but if an intern is spending significant time in a classroom setting, the more likely it will be viewed as an unpaid academic endeavor.
  • Interns in the “for-profit” private sector who qualify as employees must be paid at least the federal minimum wage (and don’t forget about state and/or local minimum wage laws either) and overtime compensation for hours worked beyond 40 in a workweek.

For “for-profit” employers, the Department of Labor’s prejudice is to find that an employment relationship exists. Employers must show that the unpaid internship is proper. The definition of employee is very broad under federal law and the internship exception is tailored to be very narrow. For-profit businesses need to be vary careful about how their internship programs are structured and the closer the relationship between the employer and an academic institution, the better the internship will be in terms of compliance.