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Sep 28, 2010

By Patricia F. Weisberg

If your company offers unpaid internships to students, take heed: The U.S. Department of Labor (DOL) has begun to crack down on employers that do not pay interns or do not pay them properly.

There are several reasons that the DOL is just now addressing this issue.

First, the DOL has an increased budget and commitment to enforcing the FLSA. Second, interns typically do not file complaints – either because they need the experience or because they don’t want to risk endangering their chances for future employment.

With this in mind, there’s no better time than now to get up to speed on the regulations addressing internship programs. As spokespersons from the DOL’s Wage and Hour Division reportedly have noted, few “for-profit” employers can offer unpaid internships and remain in compliance with the law — namely the Fair Labor Standards Act (FLSA).

In an attempt to educate employers, the DOL issued a “Fact Sheet” discussing Internship Programs under the Fair Labor Standards Act

The Unpaid Internship “Test”

The new Fact Sheet provides information to help for-profit employers determine whether interns must be paid the minimum wage and overtime under the FLSA. The determination of whether an unpaid internship or training program is lawful under the FLSA depends upon all of the facts and circumstances of each such program.

The DOL says that all of the following six criteria must be applied when making this determination:

  • 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;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees but instead works under close supervision of existing staff;
  • The employer providing the training derives no immediate advantage from the activities of the intern; and on occasion, its operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the conclusion of the internship;
  • 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 factors listed above are met, the DOL says an employment relationship generally does not exist under the FLSA, and the intern does not have to be paid. This exclusion, however, is extremely narrow. The DOL is really saying that, if your company benefits from the work that an intern performs, then the intern must be paid.

What to Do…and Not Do

An internship program structured around a classroom or academic experience, as opposed to the employer’s actual operations, is more likely to be viewed as an extension of the individual’s educational experience. A typical scenario for this often occurs when a college or university exercises oversight over the internship program and provides educational credit.

An internship program that provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, will be more likely to be viewed as training.

The intern should not perform “routine work” of the business on a regular and recurring basis, and the business should not be dependent upon the work of the intern.

Interns also should not replace or substitute for regular workers. If the employer would have otherwise hired additional workers, but for the availability of the interns, the interns must be paid at least minimum wage. If, however, the employer is providing job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, and the intern performs no or minimal work, the activity is more likely to be viewed as a bona fide educational experience.

An internship is typically for a fixed duration. It should not be used as a “trial period.” The DOL has said that if an intern is placed with the employer for an internship with the expectation that he or she will then be hired as an employee, the intern must be paid.

Additionally, there is an exception in the FLSA for some individuals who volunteer to perform services for a state or local government agency, or individuals who volunteer their time to non-profit organizations – freely and without anticipation of compensation – for religious, charitable, civic, or humanitarian purposes. The DOL is currently reviewing the need for additional guidance on internships in the public and non-profit sectors.

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