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HR Alert: The Unpaid Intern Risk

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With the start of the fall semester, companies may be looking to expand their teams. Luckily, thousands of college and high school students are seeking relevant career insight and experience. Business owners and managers should beware, however, as interns are largely recognized in the law as employees and not just additional helping hands around the office or shop.

With this distinction, it’s essential to stay up to date with current rules and regulations regarding worker status.  We can help.

Fortunately, it’s not too difficult to ensure you’re informed when it comes to employing interns. The Fair Labor Standards Act, a federal Labor Law establishing minimum wage and labor standards requirements, contains a seven-prong beneficiary test to determine whether your intern must be paid or not. 

The first factor delves into the initial agreement between the company and the intern. Does the intern know they won’t be compensated for their work? Was there a promise made that indicated a wage in exchange for the completion of a project? If so, the worker is considered an employee and must be paid.

The second and third factors require employers to determine the type of experience the intern is receiving. Here, it’s important to ask if the training they’re receiving is comparable to that of an educational institution or if the internship fulfills some sort of academic requirement. Companies also should consider if the intern is receiving credit in exchange for their work. If the answer to any of these questions is no, the intern is likely entitled to compensation.

Fourth, companies must consider the time period during which they’re employing students. Although companies often welcome interns in the fall, winter and summer internships are also quite popular. Adding interns outside of the standard academic calendar, however, often requires that they be paid in some form. Following the analysis required for prongs two and three, it’s essential that any unpaid work aligns with the intern’s educational and academic endeavors. 

The fifth factor asks employers if the internship is reserved to a time period of beneficial learning. Stated differently, does the intern have a designated project to fulfill? Will the intern continue to work following completion of the project? Generally, if the intern doesn’t have a specific goal that signifies completion of the internship, they must be paid. Here, it’s necessary to examine all extended student roles, because outside of the standard eight to 10-week semester window, the intern is more often than not viewed in the law as an employee.

The sixth factor requires employers to determine if the intern’s work is complementary to the work of others at the company and if it provides the intern with beneficial learning. Companies must examine if the intern is responsible for unique tasks to the intern alone or if the intern’s work replaces another worker’s work. If the intern is fulfilling requirements that would have been completed by other paid employees, that is, the intern has displaced a paid employee, then the intern must be paid as well.

Finally, the beneficiary test’s seventh factor asks employers to consider the general nature of the internship. Did they post the opportunity as a job listing? Does the intern understand that they won’t be compensated  for the services they’re providing? Is there a documented or clearly understood agreement that ensures the intern won’t complete the internship expecting to ultimately be paid? If there isn’t a clear understanding of the terms of the internship, the agreement may create legal trouble for the company.

The federal Department of Labor has a useful fact sheet for employers as guidance. You can find it here.

There are similar, and also additional, requirements under New York’s Labor Law. It’s a double-whammy for employers when they’re in New York State. The New York guidance can be found here.

At the end of the day, if you operate or manage a company that uses interns, you should ensure you closely examine each internship situation, get solid legal advice, and ultimately – of course! – comply with the law. There are a handful of colleges and universities – and even graduate programs and law schools! –  that entice employers to participate in internship programs by promising that compensation won’t be necessary. In many cases, though, that’s simply not true. And relying on these marketing promises isn’t a defense if the Department of Labor conducts an audit and concludes that your interns should have gotten paid. That can get you and your company in hot water quickly in New York and under federal law.

If you’re uncertain about your interns and compliance, The Coppola Firm is here to help. Our team is available to answer our clients’ employment law questions at 716.839.9700 or info@coppolalegal.com.

Lisa Coppola

Written by Lisa Coppola

Founder of The Coppola Firm

Lisa A. Coppola, Esq. understands the challenges her clients face, whether they’re starting a new business, taking their existing operations in a new direction, or facing a claim or threat.

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