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ARE INTERNSHIPS REQUIRED TO BE PAID?

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 ARE INTERNSHIPS REQUIRED TO BE PAID?

            Companies are constantly seeking to reduce expenses in order to bolster their bottom line.  The easiest way to achieve this result is by reducing the largest expense a company has, employee salaries.  Thus, it makes sense that companies would look to acquire talented individuals at a subpar salary.  In many cases, this is can be accomplished through internships, paid or unpaid.

However, over the past few years, companies who provide unpaid internships to students have come under fire.  The Fair Labor Standards Act (“FLSA”) defines the term “employ” to mean “to suffer or permit to work.”  Employees who are covered and determined to be non-exempt under the FLSA must be compensated for the services they are perform for their employer.  Therefore, the United States Department of Labor makes clear that most internships in the “for-profit” or private sector must be paid, but, as with all rules, there is an exception.  To determine whether a training program or internship meets the exception, the following six factors are utilized:

  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 of the above factors are met, an individual will not be determined to be an employee under the FLSA and the internship may be unpaid.  As may be gleaned, this analysis is extremely fact-sensitive, making every situation different.

With regard to the first prong in the analysis, the more an internship or training program resembles a classroom or academic experience (typically through academic oversight) the more likely this prong is to be met.  To achieve this, the business should take steps to (a) ensure the intern is performing a wide variety of tasks which will benefit him at future employers, not just the business he is currently interning for, and (b) the business should not be dependent on the interns work.  A business may be determined to be dependent on the interns work if the intern is performing productive work such as clerical work or assisting customers.  Should the conclusion be the internship resembles an academic or classroom experience, then it will most likely be determined that the experience is for the benefit of the intern and the second prong of the test will be met as well.

The third prong can be met by making sure the interns are not taking the place of regular employees.  If the business would have hired additional staff or required longer hours had it not been for the interns, the business will fail to meet this prong.  Rather, interns and their work, which should be minimal, should be supervised at all times (much more so than regular employees).  For instance, the intern should be shadowed or should shadow a supervising employee at all times.

In reference to the fourth prong, the business is expected to invest in the intern without an expectation of return of the investment.  That is, training or experiences may be provided where the business should not expect the intern to utilize the training or experience for the benefit of the business.

The fifth prong is self-explanatory in that full-time employment is not guaranteed or promised upon successful completion of the internship.  This type of arrangement suggests the “internship” was really just a probationary period of employment.

Finally, the sixth prong requires a meeting of the minds.  This means that it must be explicitly agreed upon in advance that the internship will be unpaid.  This can be accomplished by an appropriate written document.

It is highly recommended that any business looking to provide an unpaid internship consult with a qualified attorney before hiring an intern to avoid the harsh affects a violation of the FLSA may have.

The above information can be found at Fact Sheet #71 of the United States Department of Labor, Wage and Hour and Division.

 

DISCLAIMER: THE ABOVE IS NOT INTENDED AS LEGAL OR TAX ADVICE.  ANY QUESTION REGARDING THE ABOVE OR ANY OTHER LEGAL OR TAX ISSUE SHOULD BE DIRECTED TO YOUR ATTORNEY OR ACCOUNTANT.

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