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Interns and the FLSA: When do they have to be paid?

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in Centerpiece,Human Resources,Overtime Labor Laws

THE LAW: The Fair Labor Stand­ards Act (FLSA) defines an employee as “any individual employed by an employer.” To “employ” means “to suffer or permit to work.”

So how do unpaid interns fit into this picture? No doubt, many believe they are both permitted to work … and suffer, perhaps because they’re not being paid.

The FLSA doesn’t specifically address unpaid interns. But where the law is silent, the U.S. Supreme Court has spoken. In Walling v. Portland Ter­­­mi­­nal Co. (330 U.S. 148, 1947), the Supreme Court ruled that individ­uals who work without any express or implied compensation agreement on an employer’s premises are not employees, if they benefit by receiving training or experience.

WHAT’S NEW: On the surface, internship arrangements look like a win-win: The employer gets free labor. The intern gets valuable training and builds skills.

Traditionally, interns were relatively young, inexperienced workers hoping to land a paying position at some point. But hard times have forced older ­workers to try the intern option. They see the i­­n­­ternship as a way to prove their worth to an employer and update their skills.

But before you get carried away by the prospect of marvelous production for virtually no cost, let’s have a reality check. The FLSA requires interns to receive some educational benefit from the internship. And, in recent years, interns have become more vocal—in the media and via lawsuits—about being paid for their work.

Further, in 2010, the U.S. Department of Labor released Fact Sheet #71 that lays out six criteria that employer-intern relationships must meet to be in compliance. Employers that fail to meet all six must pay the intern at least minimum wage (see box below).

In some cases, the intern may ­actually be entitled to benefits, meal breaks, over­time and penalties, in ­addition to wages.

HOW TO COMPLY: To avoid having to pay interns, employers must meet all six criteria­­—easier said than done. Most notably, the internship must be for the benefit of the intern, must be similar to the training received in an education environment and must not replace a regular employee.

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.

Today’s nontraditional intern may not enter the internship through an educational institution. Regardless, the law still requires the experience to be “similar to training that would be given in an educational environment.”

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

Is it an employment contract?

If you decide to bring interns aboard, have each sign a contract indicating that he or she is not entitled to receive pay and that you are making no guarantee of future employment. Not only does this protect you from contractual obligations, it also is required to preserve the internship arrangement under the FLSA.

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

Train managers not to make any promises of employment to interns other than to say that they may be considered for any future openings.

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