Be Mindful of Legal Compliance with Unpaid Internships



​Companies offer paid and unpaid internships for many reasons: building their talent pipeline, training and educating potential hires, testing whether potential hires are a good fit, and enhancing their ties to colleges and universities as well as the local community.

When done well, internship programs can enhance employers' recruitment and retention efforts, as well as employee satisfaction.

To achieve these positive results, it's crucial that HR professionals and supervisors understand the legal obligations that apply to paid and unpaid internships. State and federal laws regulate when interns should be considered employees and therefore entitled to minimum wage, overtime pay, workers' compensation and other protections.

Employers should stay abreast of any changes to state or local laws regarding unpaid interns because "these things evolve on a state and local level," said Jeffrey Ruzal, an attorney with Epstein Becker Green in New York City.

When making arrangements with an intern, be clear about the start and end date of the internship so that it doesn't appear to be a permanent job. Internships are typically considered temporary and often last three months in the summer.

Paid vs. Unpaid Interns

When determining whether someone should be classified as an unpaid intern, "the rules are pretty stringent," Ruzal said. "The economic reality of the relationship is foremost."

The "primary beneficiary test" under the federal Fair Labor Standards Act (FLSA) determines whether a person should be classified as an unpaid intern or a paid employee. These seven factors should be considered under the test:

• Whether the intern and the employer clearly understand that there is no expectation of compensation.
• Whether the internship provides training similar to that which would be given in an educational environment, such as clinical and hands-on training.
• Whether the internship is tied to coursework or the receipt of academic credit.
• Whether the internship accommodates the intern's academic commitments by corresponding to the academic calendar.
• Whether the internship's duration is limited to the period in which the internship provides beneficial learning.
• Whether the intern's work complements, rather than displaces, the work of paid employees.
• Whether the intern and the employer understand there's no entitlement to a paid job at the conclusion of the internship.

"In general, internships at private, for-profit organizations must be paid if the employer, rather than the intern, is the primary beneficiary of the program," said Epstein Becker Green attorney Lauri Rasnick. "Employers should consider whether the work being done by interns is similar [to] or the same as work that is generally done by paid employees."

The FLSA "defines the term 'employ' very broadly as including to 'suffer or permit to work,' " said John Cascone, senior vice president of Flex HR, an HR outsourcing firm in Johns Creek, Ga. However, Cascone noted there's an exception for those who meet the primary beneficiary test. "This exclusion from the definition of employment is necessarily quite narrow because the FLSA's definition of 'employ' is very broad," he explained.

Companies can also choose to pay interns even when they're not legally required to do so.

Rasnick recommended that employers tailor the duties interns perform so they are more akin to job-shadowing projects, rather than substantive work. She also urged companies to make sure they don't fill open employee positions with interns.

For unpaid interns, meal and rest breaks might not be mandated, but Ruzal said employers should consider offering them anyway. "That business will still probably want to extend the same sort of meal breaks or rest breaks [to interns] because you don't necessarily want to alienate those individuals," he said.

In addition, in some states, unpaid interns who do not qualify as employees may still have legal protections from discrimination, harassment and retaliation in the workplace, Rasnick noted.