An internship is often seen as a great learning experience and a step in the right direction towards a desired career, no matter how much it pays. In fact, many college students are OK with no pay at all if the internship helps pad their resumes.
But, is it legal to hire interns and not pay them? What does the Fair Labor Standards Act have to say?
The answer is that there are several guidelines an internship program should follow in order to be legally unpaid under the FLSA. It’s important for both the business owner and intern to know what the rules are in terms of compensation, so let’s break those guidelines down.
Remember, this is not official legal advice. If you have any concerns about hiring an unpaid intern, check the laws in your area or consult an employment lawyer.
What are the federal guidelines for hiring unpaid interns?
According to the U.S. Department of Labor, “for-profit” employers in the public sector are required to pay all employees for their work, but the determination of whether or not students and interns are considered employees is what makes the lack of pay legal.
In the words of the DOL:
“Interns and students, however, may not be ‘employees’ under the FLSA—in which case the FLSA does not require compensation for their work.”
In an effort to prevent businesses from mooching off of interns for free labor, a test consisting of a list of guidelines—known as the “primary beneficiary” test—was created by the DOL to help employers decide if an intern should be paid.
The test is also used by courts to decide the “economic reality” of the intern-employer relationship. We broke down the test factor-by-factor to explain in a little more detail what each guideline means.
1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
What does this mean? It should be made clear from the beginning that there will be no kind of payment for the internship program.
2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
What does this mean? The work performed by the intern should be both productive and educational.
3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
What does this mean? The intern should actually be learning something from their work with your business, not just fetching you coffee. You should consider a compensation plan if not college credit is being given.
4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
What does this mean? Remember that the internship is only a part of the student’s academic responsibilities. Be flexible and allow them to put their school calendar first.
5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
What does this mean? Don’t fill your intern’s time with meaningless work—when they’ve learned everything they can from the program, end the internship.
6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
What does this mean? Your staff shouldn’t be inconvenienced when it comes to teaching the intern.
7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
What does this mean? If you guarantee an intern a job placement after the program, the internship is then considered an orientation and the intern must be paid.
It’s not required that your internship program checks every single box on this list, but be careful. If you play it fairly loose with the guidelines, you could face stiff penalties if an intern decides to challenge their unpaid status.
What are Some Best Practices for Hiring Unpaid Interns?
The main goal for an internship is for everyone to benefit—the intern gets the valuable knowledge they will eventually use in their career, and you get the extra (legal) help while enriching youthful minds. Here are a few more tips for making the program as well rounded as possible.
Keep things interesting
Consider a type of rotational internship program so the students can get a chance to learn about each and every moving part of your business. This way they’ll get a better understanding of what exactly goes into their desired line of work.
Ensure supervision at all times
Never leave your interns alone at a worksite, and make sure they always have a reliable point of contact. You should also ensure they know who their immediate supervisor is and how they can be reached.
Hold consistent review periods
After the first two weeks of an internship, you should hold an evaluation. Then, another one should be held at the halfway point, and a final review should be conducted at the end of the program. Interns learn best from feedback on their performance, so be thorough and fair.