Posts Tagged ‘recruting’

To Pay or Not to Pay: The Internship Debate

March 17, 2014

Intern Article Image

With winter finally coming to an end and the return of the summer months, businesses across the country are starting to ramp up efforts to bring in summer interns.  Internship programs can be beneficial for students who need to gain experience in their field of study even if they will not be paid for the work that is being assigned.   Those benefits also include developing experience for inclusion on a resume, potential future employment references and, sometimes, additional college credit for the work that is done.  There are many benefits to business, as well, in terms of reducing heavy workloads, filling future recruiting pipelines, and increasing employee managerial skills, just to name a few.   The mutual benefits that can be derived from an internship program are clear but, in reality, employers can lose at the internship game if their programs are not designed and managed properly.

 The Fair Labor Standards Act (FLSA)

Most employers know that the FLSA differentiates between employees and independent contractors, but many don’t realize that an intern can often fall within the definition of an employee if care is not taken to differentiate the intern’s role and responsibilities.  As with independent contractors, the Department of Labor has defined specific tests that must be met in order to properly classify interns vs. employees.

 FLSA Internship Test

Under the FLSA, the following six tests must be met in order for a worker to be classified as an intern:

 1.       The internship, even though it includes a role in the actual operation of the business or facilities of the employer, is similar to training which would be provided in an educational environment;

2.       The internship experience must be designed for the benefit of the intern, and is not with expectations of commercial benefit for the business;

3.       The intern does not displace regular employees, but works under close supervision of existing staff;

4.       The employer that provides the training  derives no immediate advantage from the activities of the intern; and on occasion operation of the employer’s core business functions could be impeded;

5.       The intern is not necessarily entitled to a job at the conclusion of the internship; and

6.       The intern and the employer mutually understand that the intern is not entitled to wages for time spent in the internship.

 It is important to note that all six of the requirements must be met in order to demonstrate that an “employment relationship” does not exist, and the intern is not entitled to the benefits and protections afforded to employees under the FLSA rules.

The Pitfalls of Misclassification

Beware of assigning menial tasks to interns or hiring interns in lieu of employees.  And, be careful, to pay attention to wage and hour rules if interns are to be paid, even when the payment is in the form of a stipend.

In 2013, the United States District Court for the Southern District of New York held that duties performed by interns such as taking lunch orders, making deliveries, and organizing file cabinets demonstrated the existence of an employment relationship and that the unpaid interns charged with these tasks should have been classified as employees (Glatt v. Fox Searchlight Pictures). The case demonstrated that menial office duties were not for the educational and/or training benefit of the intern and only benefited the employer.  Therefore, the interns should have been classified as employees and paid.  In the same court, a collective class action suit was filed against a modeling management company.  In that case, the petitioner filed a $50 million suit alleging that the modeling agency knowingly misclassified employees as unpaid interns in order to avoid paying wages and overtime.

 Unpaid internship programs are not the only programs at risk. Internship programs that offer stipends that do not meet the minimum wage requirements are also at risk of wage and hour claims.  Take the situation where a student receives an internship for a company and receives a stipend for his/her work.  If the amount of the stipend is not adequate and in conformity with minimum wage and overtime requirements, there could be an actionable wage and hour issue.  In this case, an attempt at providing some compensation to the intern could actually backfire in a meaningful way.

 Finally, let’s not forget the issue of commercial benefit.  The tech-savvy intern who is brought on to develop a new program or application that may be offered for sale in the future probably isn’t going to be classified as a true intern under the FLSA’s rules and that individual should be compensated for his/her work.

 Conclusion

When properly designed, the use of interns can offer a company many benefits.  Overhead and overall wage and benefit expenses can be controlled.  Interns often bring new skills, particularly in areas such as technology, to the fore during an internship. Recruitment of interns can often be done using free websites such as intern.com.  Interns also derive significant benefit from the practical experience that an internship may provide.  All in all, offering internships can be a win/win situation for both the company and the student as long as the program follows the requirements set forth by the FLSA and, if applicable, state wage and hour laws.  Take these rules into account when designing your program and, when in doubt, seek the advice of legal counsel before taking the plunge.  Remember that an hour of your attorney’s time may mean the difference between a successful internship experience and a costly mistake that could end up in litigation.