Small businesses have long used unpaid internships as a way to lower costs. But internships are not supposed to be free labor. There are actually specific requirements that must be complied with if you run a for-profit business and plan on offering unpaid internships. In such circumstances, the relationship must be more like a training program for the benefit of the intern and not the employer. An employer who fails to pay interns who are otherwise entitled to pay may be liable for unpaid wages, taxes, interest and penalties.
So how can you ensure that your unpaid internship complies with the law?
Under federal, there are six factors in deciding whether an intern can be unpaid:
- The internship is similar to training the intern would receive in an educational environment.
- The internship is for the benefit of the intern.
- The intern does not occupy the position of a regular employee, but works under close supervision of current staff.
- The employer gets no immediate advantage from having the intern; the intern may occasionally even be an impediment.
- The intern isn’t necessarily entitled to a job at the end of the internship.
- The employer and the intern understand that the intern isn’t entitled to wages (something you should put in writing).
If all of the factors listed above are met, an employment relationship does not exist between the Company and the intern, and therefore minimum wage and overtime requirements and other employer-employee obligations do not apply to the intern. If the factors are not met, then the intern is to be treated as an employee – and therefore must be paid. Contrary to popular belief, high school or college credit is not required for an unpaid internship and neither is paying a stipend that falls below the minimum wage standards.
Also note that in addition to these federal requirements, individual states may have additional requirements that need to be satisfied. Check your state’s Department of Labor for more information.
There are some exceptions to the six-factor test. Unpaid internships may be acceptable if the intern volunteers to perform services for:
· a state or local government agency
· humanitarian purposes for private non-profit food banks.
· religious, charitable, civic, or humanitarian purposes to non-profit organizations.
As you approach the process of hiring an unpaid intern, it’s important to understand that an internship is a learning experience for the intern. As such, the experience should complement the student’s field of study, be structured as a mentoring relationship (you’ll need to appoint a dedicated supervisor to assume this role) and has distinct learning goals throughout the course of the program.
Otherwise, you ought to consider hiring an intern as an employee. When hiring a paid intern, you must comply with the same requirements as hiring a non-intern employee. In other words, they must be named on your company payroll and you must meet minimum wage, overtime pay and other state and federal employment requirements.