Summer Interns:  Free Labor Could Cost Your Company

Summer Interns:  Free Labor Could Cost Your Company

Summer Interns:  Free Labor Could Cost Your Company

As we head into the Summer, many companies will be approached to enlist unpaid interns.  Given the economic climate, many students and recent grads are eager for real-world experience and are willing to work without pay.

Beware: In many instances, interns are considered employees and the consequences of misclassifying interns can be costly.  Intern programs are a potential liability for any employer. Therefore, before hiring an intern, employers should take time to know the rules. Read on.

The FLSA: The Fair Labor Standards Act (FLSA) defines “employ” very broadly as including to “suffer or permit to work.”  Covered non-exempt individuals who are “suffered or permitted” to work must be compensated under the law for services.  Under the FLSA, it is impermissible for an individual to volunteer his or her time to a “for-profit” employer.  Internships in the “for-profit” sector will most often be viewed as employment,  unless the worker falls under one of few narrowly tailored exemptions.  Depending on the circumstances, an intern may fall under the “trainee” exemption.  If not, the intern must be paid.

 

The Test: According to the Department of  Labor (DOL), trainees are not considered employees (and thus do not need to be paid) only if all of the following criteria are met:

  • The internship is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees, but works under the close supervision of existing staff;
  • The employer that provides training derives no immediate advantage from the activities of the trainees; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages at the time of the internship.

The DOL has noted that “in the typical internship or externship program where the work is an extension of the student’s academic program, these factors are met and an employer-employee relationship does not exist.”

The courts and administrative agencies balance the costs to the employer against the gains to the employer.  If the costs of the trainee actually costs the company money or hinders its operations, the balance will lean towards trainee status.  In general, the more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern will be viewed as receiving training.   On the other hand, if the interns are engaged in operations of the employer or are performing productive work (for example, filing, assisting customers, and other clerical work), then the fact that they are receiving some benefit in the form of new skills and experience will not exclude them from the FLSA’s minimum wage and overtime requirements.  In other words, they must be paid!

Consequences: The consequences for failing to properly pay interns can include:

  • Liability for unpaid wages for all hours worked (including overtime);
  • Liability for unpaid employment taxes; and
  • Attorneys’ fees

Accordingly, employers should not take hiring an intern lightly.  Instead, they should do it with some thought and know the rules.

For more information about your classification of interns, or any other employment law needs, please contact the head of GDHM’s Employment Law groupSusan Burton, at sburton@gdhm.com or 512.480.5738.