The pitfalls of unpaid internships

With the summer coming on, it is not unusual for employers to be bombarded with requests for unpaid internships. Students want to gain valuable experience, build their resumes, and perhaps gain an introduction to a future employer. In a tough economy and job market, recent graduates or the unemployed view unpaid internships as a way to get their foot in the door for regular employment. Unpaid internships are beneficial to employers, who gain talented, motivated people who will work for nothing. Also, the internship provides the employer with an opportunity to evaluate or screen prospective employees. However, unpaid internships can be risky for employers.

The Fair Labor Standard Act (FLSA) requires employers to pay individuals at or above the minimum wage and pay non-exempt employees overtime for hours worked in excess of 40 hours per work week. The FLSA has an internship exception for minimum wage and overtime; however, the exception is extremely narrow. Last year, two high-profile lawsuits were filed by former unpaid interns seeking back pay and overtime. If they are found to be employees who are not covered by the FLSA’s unpaid internship exception, the employers are looking at hundreds of thousands of dollars in back pay and overtime, as well as tax and benefits liability.

The Department of Labor‘s Wage and Hour Division has issued Fact Sheet No. 71, which lays out the test on whether interns should be paid or fall under the very narrow unpaid internship FLSA exception. In order to be unpaid, an internship, must meet six requirements:

  1. The internship must be similar to training that would be given in an educational environment;
  2. The internship experience must result in a benefit primarily for the intern;
  3. The intern should not replace regular employees and must work under close supervision;
  4. The intern’s activities should not provide immediate advantage to the employer, and in some cases, may detract from the employer’s operations;
  5. There should be no entitlement to a job at the conclusion of the internship; and
  6. From the very outset, the employer and intern must understand there is no entitlement to wages for the time spent at work.

As you can see, the exception that allows organizations to not pay interns does not apply in many cases.
BOTTOM LINE:  If the employer is the primary beneficiary of the intern’s work (as opposed to what the intern gets out of the experience), the FLSA’s minimum wage and overtime rules likely apply, and the intern should be paid.