6 Tips to Create a Compliant Unpaid Internship Program

School is back in session, and students may be seeking internships to supplement their classroom learning. So now is a good time for employers to review their internship programs—particularly since the U.S. Department of Labor (DOL) adopted new rules this year. Here are some tips for creating a solid program.

1. Assign Meaningful Tasks

Under the Fair Labor Standards Act (FLSA), businesses must pay employees at least the minimum wage unless their job duties fall under one of several exceptions to the rule. That means businesses can lawfully hire unpaid interns only if the internship meets certain criteria.

Earlier this year, the DOL replaced its rigid six-factor test with a seven-factor "primary-beneficiary test" for determining whether interns are employees. The new test is considered more flexible because not all seven criteria have to be met for an internship to be unpaid. Rather, the DOL will consider the "totality of the circumstances."

Despite the change, unpaid internship programs still must primarily benefit the intern. Consider whether the tangible and intangible benefits to the intern are greater than the intern's contribution to the employer's operation, said Donald Lawless, an attorney with Barnes & Thornburg in Grand Rapids, Mich. "Is the intern practicing a skill in a professional environment, or is the employer taking advantage of unpaid labor?"

2. Coordinate with a School Program

An unpaid intern doesn't have to receive school credit, but this is one factor that the DOL and courts will generally consider when determining the legality of the program. "Academic approval minimizes the risk," Lawless explained. He noted, however, that the content of the program is essential.

[SHRM members-only toolkit: Employing Interns]

Working with an educational institution can be particularly beneficial because the school will likely have a list of internship content criteria and skills that interns should master during the program, said Rebecca Aragon, an attorney with Littler in Los Angeles. Schools will want to maintain the integrity of the program and measure outcomes.

If an employer isn't partnering with an educational institution, working with a student's academic schedule can be helpful, said Lauren Sobaski, an attorney with Fisher Phillips in Kansas City, Mo. One factor the DOL considers is the extent to which the program accommodates the intern's academic commitments by corresponding to the academic calendar.

3. Check State Laws

Many states have their own wage and hour laws, as well as special exceptions that are applicable to interns and trainees. "These laws can vary dramatically," Aragon said. Some states still follow the old DOL test, others have adopted the new test, and some have completely different criteria.

At the end of the day, multistate employers need to understand the rules in all applicable jurisdictions, Lawless said. "Take a look at the state labor agency's website and search for unpaid internships to find the right test."

When rules differ, employers should follow the stricter requirement, Aragon said, though she noted that sometimes rules are just different from one another, and it can be hard to figure out which one is stricter. Employers may want to seek legal counsel if they aren't sure.

4. Create an Acknowledgment

Employers should draft an acknowledgment that describes the nature of the work, the educational components and what the intern will gain from the experience, Sobaski said.

Lawless suggested that employers prepare a one- or two-page internship plan. "It doesn't have to be a curriculum, just a plan," he said. Employers should identify the types of experiences they hope interns will have and meet with interns every two weeks to make sure they are meeting the program's goals.

The DOL's test considers whether the intern clearly understood that there was no expectation of compensation during the program or entitlement to a paid job at the conclusion. So these expectations should also be put in writing and included in the acknowledgment, attorneys said.

5. Evaluate Each Case

Courts have described the DOL's primary-beneficiary test as flexible, and no one factor is determinative. "Accordingly, whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case," the DOL states in its fact sheet on internships.

A for-profit business should start with the presumption that interns need to be paid and then build a case using the relevant factors: that the program is for the benefit of the intern, that it is educational and that the business isn't getting an immediate gain from the program, Sobaski said.

Note that unpaid internships for public-sector employers and nonprofit charitable organizations are usually permissible if the intern volunteers and doesn't expect to be paid.

6. Weigh the Cost

If an employer isn't sure whether the internship qualifies under federal, state and local requirements for unpaid internships, it is safest to pay interns the applicable minimum wage, Sobaski said.

Litigation can be costly for employers, even if a court ultimately rules that the unpaid internship program was valid. By the time an employer gets the court order saying the program was valid, the business will usually have paid more in attorney fees and lost time for the HR department than it would have by simply paying minimum wage, Aragon said.