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Internships aren’t ‘free labor’ if they violate the FLSA

by on
in Employment Law,Hiring,Human Resources

Traditionally, interns were relatively young, inexperienced workers hoping to gain real-world experience. But hard times have forced older workers to try the intern option. Fearing that employers shun applicants with long, unexplained career gaps, ambitious but unemployed people are opting for unpaid internships.

On the surface, that looks like a win-win. The intern builds skills and prevents big résumé holes. The em­­ployer gets free labor in exchange for the cost of a computer, some office space and a little coffee.

But before you get carried away by the prospect of marvelous production for virtually no cost, let’s have a reality check.

‘Free’ workers can cost big

The Fair Labor Standards Act (FLSA) requires interns to receive some educational benefit from the internship. Fur­­ther, the employer-intern relationship must meet six criteria to be in compliance. Employers that fail to meet all six must pay the intern at least minimum wage.

In some cases, the intern may actually be entitled to benefits, meal breaks and  overtime. And if you’re sued and found to be in violation of the FLSA, you will be liable for substantial monetary penalties in addition to back pay.

To avoid having to pay interns, em­­ployers must meet all six criteria laid out in U.S. Department of Labor Fact Sheet #71:

  1. The internship, even though at a worksite, is similar to training that would be given in an educational environment.
  2. The internship is for the benefit of the intern.
  3. The intern does not displace a regular employee, but works under close observation of existing staff.
  4. The employer derives no immediate advantage from the activities of the intern. On occasion, its operations might actually be impeded.
  5. The intern is not necessarily entitled to a job at the completion of the internship.
  6. The employer and the intern under­­stand that the intern is not entitled to wages.

No single criterion determines whether your intern is an employee or an intern. Courts would look at the situation in its entirety with these criteria in mind.

Clearly, however, some situations will set off compliance alarms. If you are using an intern to replace an em­­ployee, for example, you’re looking for trouble. Both federal and state labor departments will find you in violation of wage-and-hour laws.

The educational aspect

Not as obvious, but just as important is the educational component of the internship. To be safe, compile a list of various educational goals the internship is designed to accomplish.

Even when dealing with traditional college or trade-school internships, you should still protect yourself with this step. The educational objective list will provide cover for both employer and educational institution against claims that an internship is just a source of cheap labor.

Documenting the intern’s progress along the way can also bolster the case that the internship is legitimate.

Promise of future employment?

If you decide to bring interns aboard, have each one sign a contract indicating that he or she is not entitled to pay and that you are making no guarantee of future employment.

Include a clause stating that the contract can only be changed in writing. Otherwise, interns might assert that management promised a job once the internship was over.

Train managers not to make any promises of employment to interns.

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