MMC, Inc. HR Tip May 2010 Volume 2 Issue 5

Rules for Hiring Unpaid Interns

Written by: Michele O'Donnell, M.S. Human Resources Management

As the summer season draws closer, so does the scramble for many college students to find summer internships. In recent decades, internships have largely been used as a vehicle by college students to learn valuable skills in the business world, gain experience to add to their resume, and help them get their foot in the door with a potential future employer.  In today’s economic climate, the scenario of internships only being for college students does not hold true. With the current rate of unemployment and slow growth in the job market, there are many adults with long career histories taking on internships for various reasons, such as to learn about a new industry, or develop new skills. Unpaid internships have been on the rise and two Economic Policy Institute (EPI) researchers estimate that “at least 2.5 million students per year now participate in internships.”

Many companies have had internship programs in place for years. The question is, are these internships legal? The federal Department of Labor (DOL) and many states are stepping up investigations in this area. In a recent interview with the New York Times, Nancy J. Leppink, acting director of the DOL’s Wage and Hour Division, stated the following;

“If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”

The DOL provides guidance on having a legal unpaid internship program; however, the guidance is not crystal clear and following six criteria must be applied when making this determination:

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 all criteria above are met, the person will be viewed as a trainee instead of an employee, on the federal level at least. It is important to note that in addition to the federal test, many states have their own regulations with regard to internship programs. For example, California requires the federal requirements be met in addition to the state criteria listed below: 

1. The training should be part of an educational curriculum.
2. The students should not be treated as employees for such purposes as receiving benefits.
3. The training should be general in nature, so as to qualify the students for work for any employer, rather than designed specifically as preparation for work at the employer offering the program.
4. The screening process for the program should not be the same as for employment.
5. Advertisements for the program should be couched in terms of education rather than employment.

With both federal and state agencies promising increased scrutiny, investigations, and fines in this area, it is imperative for employers to understand all regulations and craft internships very carefully. The Oregon Department of Labor recently handled complaints from two persons that claimed they were wrongly treated as unpaid interns. They were awarded $3,350 in back pay for the error. Employers should consult with their legal counsel prior to implementing an internship program. There are numerous issues to consider if an internship program is deemed illegal, such as wage and hour violations and workers compensation issues (including missed premiums). These items coupled with potential fines at the state and federal levels make the prospect of an improper internship quite costly.

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