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Internships 101: Studying Up for the FLSA Test

It’s one of the greatest battles in the professional world. No, not Mac or PC. Not decaf versus caffeine. Not blue ink against black. No, in this two-part series we’ll tackle the central debate of your company’s intern program: To pay or not to pay?

In the past, internships have been equated to apprenticeships: the student learns from the master in a real-world industry environment. In this traditional view, the interns are beholden to the company for the work experience, knowledge and contacts they’ve received. Unpaid internships have been such a common business practice that they’re seen as a rite of passage for college students – a time to test their mettle, pay their dues. To some extent this is still true, but companies shouldn’t simply default to offering unpaid internships without doing their homework. The modern American internship has changed.

Let’s talk legality. Because unpaid internships have such a long history, most people think they’re completely legal. However, the Fair Labor Standards Act (FLSA) sets down a rather rigid six-point test for determining if a student’s work really meets unpaid status. All six points must be met, not just one or two. You can read the entire law at the Department of Labor website, but we’ve boiled down the criteria here:

  • The internship is similar to training which would be given in an educational environment;
  • The internship experience is for the benefit of the intern;
  • The intern does not displace regular employees,
  • The employer derives no immediate advantage from the intern; and on occasion its operations may actually be impeded;
  • The intern is not necessarily entitled to a job after the internship; and
  • The employer and the intern understand that the intern is not entitled to wages

To help ensure your company is in compliance, we’ll read a couple of these more closely. Point three, the intern does not displace regular employees. Let’s looks at an example in the hospitality industry: If you lay off regular staff (waiters, sous chefs, bussers, clerks, office staff, guides, aides, etc.) at the beginning of summer because you’re going to supplement your workforce with unpaid interns, you’d be in violation of the FLSA. If an intern could prove that a company even delayed hiring (rather than firing) needed staff until after summer interns completed their term, an intern could be awarded wages.

Next, point four, if your interns create an “immediate advantage” for your company, directly affecting your earnings, they must be paid at least the federal minimum wage. If you have a consulting firm, and you bill your client for the hours your intern spends working on his project, the intern is entitled to be paid.

A word to non-profitsThe FLSA litmus test for paying interns applies only to for-profit companies; non-profits can usually label their interns as volunteers. If your non-profit doesn’t have the budget for paid interns, see if there are other ways – like offering a small stipend or paying transportation costs – you can attract qualified candidates.

The FLSA rules for the for-profit sector have been in place for years, but more and more, they’re actually being enforced. There have been several high profile lawsuits in the last two years brought forth by interns who were asked to work beyond the scope of an educational experience. The interns won.

So, unless you have a very carefully planned intern program, unpaid interns can actually be something of a legal liability. But rather than worry about the minimum legal requirements, let’s learn how to maximize internships for both the student and your company. In part two of Internships 101, find out how a paid internship program can benefit  your company and actually save you money in the long run.

As far as the Mac versus PC debate goes or the question of regular or decaf… you’re on your own.

Legal Disclaimer: None of the information provided herein constitutes legal advice on behalf of Paycom.