Complying with the FLSA When Hiring Unpaid Interns
For many businesses, this is the peak season for hiring unpaid interns. The number of people working in unpaid internships has risen in recent years, in part because fewer paying jobs are available, and in part because students and even regular job seekers are willing to work for free in order to build their resumes. Hiring unpaid interns is not without risk, however, especially in the for-profit sector. Employers should be aware that interns are not automatically excluded from coverage under the federal wage and hour laws, i.e., the Fair Labor Standards Act ("FLSA"). Rather, pursuant to the FLSA, an employer must pay its workers unless the position fits specific criteria. While there is an exclusion for certain internships in the for-profit sector, it is construed narrowly, and all the criteria must be met.
The United States Department of Labor ("DOL") is aware of the growth of unpaid internships in the for-profit arena, and it claims to be cracking down on firms that fail to pay interns properly. The DOL also claims to be expanding efforts to educate companies, colleges and students on the law regarding internships. The Wage and Hour Division of the DOL recently issued a Fact Sheet about internship programs that lists the required criteria and contains other helpful information. It can be found at: http://www.dol.gov/whd/regs/compliance/whdfs71.htm.
The criteria for an unpaid internship in the for-profit sector are:
The Fact Sheet stresses that an unpaid internship experience should be more similar to a classroom or academic experience than merely the employer's actual operations. Also, unpaid interns should not be used as substitutes for regular workers. While "job-shadowing" is permitted as long as the intern performs no or minimal work, if interns are provided supervision like regular staff, then it is more likely they will be deemed to be an employee. Finally, an unpaid internship should have a fixed duration, and there should be no expectation that the intern will be hired afterward as a regular employee.
If all these criteria are met, no employer/employee relationship exists under the FLSA, and the internship may be unpaid. If the position does not meet one or more of the six criteria set forth above, however, the internship must be a paid one. In the latter situation, employers may choose to restructure the position to fit within the scope of the unpaid intern criteria before hiring the intern, or, when in doubt, treat the intern as an employee and pay the intern in accordance with the FLSA and any applicable state law.
The legal consequences of not complying with the federal wage and hour laws include payments of unpaid wages and legal fines, as well as other payroll associated problems such as taxes, unemployment insurance coverage, employment benefits, and workers' compensation, to name a few.
In contrast to these strict requirements in the for-profit sector, in the public sector and non-profit sector, unpaid internships are generally permissible, if the intern volunteers without expectation of compensation.
Sherman & Howard has prepared this advisory to provide general information on recent legal developments that may be of interest. This advisory does not provide legal advice for any specific situation. This does not create an attorney-client relationship between any reader and the Firm. If you want legal advice on a specific situation, you must speak with one of our lawyers and reach an express agreement for legal representation.
©2010 Sherman & Howard L.L.C. May 10, 2010