Unpaid Internships: What Employers Need to Know

​Some observers are predicting that unpaid internships may increase now that the U.S. Department of Labor (DOL) has relaxed its intern compensation standards, but there are many questions for employers to answer before taking the unpaid route.

Legal experts tend to advise employers to pay interns as the only sure way to avoid wage and hour litigation, but they acknowledge that the unique circumstances of the internship can lead to a different decision.

"There's no right or wrong, or universal, answer," said Camille Olson, an attorney with Seyfarth Shaw in Chicago, Los Angeles and San Francisco.

The DOL on Jan. 5 threw out a rigid, six-part test that had to be met before interns could go unpaid. In its place, the department created a "primary-beneficiary test" for determining whether interns are employees. The new test includes seven factors to consider, but each factor does not have to be met and no single factor is determinative. The criteria are designed to examine "the economic reality" of the intern-employer relationship to determine which party is the primary beneficiary of the internship. If the intern is the main beneficiary of the relationship, he or she does not have to be paid.

"The new test provides more flexibility in employers' approaches to providing unpaid opportunities, but each opportunity should be reviewed based on what the employer wants out of it and what the intern wants to get out of it," Olson said.

"While it may be easier to comply with, it's harder to interpret," said Cheryl Orr, an attorney in the San Francisco office of Drinker Biddle. "That's because there's no one overriding factor. Employers need to go through all the factors for each individual situation before making a decision to pay or not to pay."

The revised rules are meant to take into consideration that interns can reap nonmonetary benefits. Under the previous test, an unpaid intern couldn't perform any productive work, Olson explained. "It was not really beneficial to the intern at all. Unpaid interns literally had to be bystanders in the workplace. The new test changes that. Think of someone working on their journalism degree who ends up at the end of an unpaid internship at a media company with a bunch of clips. The company gets the benefit of posting the articles, and the intern gets the benefit of a byline, training and working alongside professionals in their field. But the company puts in a lot more than it gets out of the relationship."

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Best Practices for Unpaid Internships

If an employer decides to offer unpaid internships, there must be clear communication and documentation that both the intern and the employer have agreed that the internship will be unpaid.

"We recommend employers get something in writing, preferably with the school as well, that lays out everybody's expectations," Orr said. "You'd want to consider having something in writing that says there will be no expectation of compensation, that the internship will be limited to a period of beneficial learning and that there is no promise of a job at the end. If you get acknowledgment of those three things in writing and you follow through on them, you will be in good shape."

Consistent, coordinated communication is key. "You want to have recruiters, interviewers, hiring managers, job advertising and marketing materials all aligned with the messaging," Olson said.

Orr added that working with a formal education program that connects the internship with the academic progression of the intern is another good idea.

"If they are in a formal education program, find out if they can get credit for the internship," Olson agreed. "If the person will get academic credit for the internship, that is very supportive of the internship being to the primary benefit of the intern."

In addition, she encouraged employers to provide "a lot of interaction and learning" during an unpaid internship, including—if resources allow—mentoring, training opportunities and even a certificate upon completion.

Know Your State and Local Laws

Some state and local laws provide different or additional types of protections to interns.

Many states follow the previous DOL regulations or have their own tests, meaning some employers will fall under the jurisdiction of the new federal test as well as labor laws adopted by their state or locality. In those cases, employers must typically follow whichever law is most generous to workers. "Often the best thing to do is call your state labor department and ask what the requirements are," Olson said.

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