INTERNS: To Pay or Not to Pay

As we move into the spring and summer months, many employers begin the process of hiring summer interns. Internships benefit the employer as well as the intern and therefore it is an attractive option. However, if the employer does not exercise caution in the way the internship is structured, potential wage and hour and other employee liability may exist.

It is important to note that simply labeling someone an “intern” will not make it “ok” to allow them to work for no pay. There are well-established criteria on the federal and state levels to determine if an intern can provide services to an employer for no pay. The United States Department of Labor (“USDOL”) has issued fact sheets to assist employers in making sure that interns are treated properly with regard to minimum wage and overtime if they do, in fact, qualify as employees under the Fair Labor Standards Act (“FLSA”). The USDOL has opined that in “for-profit” companies, internships will most likely be considered employment and therefore require that the intern be paid in accordance with the FLSA (i.e., minimum wage and overtime). This is because in order to be a “volunteer” under the FLSA and work for no pay, the individual must be providing services to a public agency for civic, charitable or humanitarian reasons without the promise or expectation of compensation. There is, however, a narrow exception to this if the intern is considered a “trainee.” There are six criteria identified by the USDOL to determine if an intern qualifies as a trainee. They are:

  1. The internship/training is similar training that would be given in an educational environment/vocational school even though it includes working in the actual environment (i.e., the internship is structured around an academic experience where the student receives educational credits);
  2. The internship is for the benefit of the intern and not to the employer;
  3. The intern does not displace regular employees of the employer, and works under close supervision;
  4. The employer derives no immediate advantage from the activities of the intern, and on occasion the employer’s operations may actually be impeded;
  5. The interns are not necessarily entitled to a job at the end of the internship; and
  6. The employer and the intern each understand that the intern is not entitled to wages for the time spent interning (but may receive a nominal stipend)

It is necessary for employers to be aware that if the intern is actually producing work for the employer that an employee would be producing, the USDOL is more likely to find an employment relationship rather than the trainee exception because the employer is the one benefitting most from the relationship. The more it is truly an overall educational experience where the intern is gaining skills usable in any employment situation, the more likely it will be that no “employment” relationship exists for purposes of wage and hour laws.

State laws vary on the wage and hour treatment of interns. Employers in New York also have to take into consideration the views of the New York State Department of Labor (“NYSDOL”) which are much more restrictive on non-paid internships than those of the USDOL. In New York, if interns are not receiving academic credit for the time spent interning for the employer, then they must be paid at least minimum wage. As such, if the intern is receiving two academic credits for working eight hours per week, then the intern must be paid at least minimum wage for all hours over eight worked in a workweek.

Federal and New York state laws also require paid interns to be paid overtime for hours worked over forty (without credit in New York) in a workweek.

Additionally, both federal and state child labor laws must be considered by the employer when employing interns under the age of eighteen. These young people are prohibited altogether from working in certain hazardous industries. In New York, sixteen and seventeen year olds are restricted in the number of hours they may work per day and per week, and in the times of day they are permitted to work which vary and depend on whether school is or is not in session.

Besides wage and hour issues, employing interns has other implications for employers. Workers compensation coverage, I-9 forms, employment taxes, benefits, unemployment insurance and discrimination laws are all implicated if an intern is actually an employee so misclassification can be particularly risky. And, even if an intern is not an employee but rather correctly classified as an intern, her internship with the employer must be reported to the workers’ compensation carrier to insure coverage if a workplace injury were to occur.

If you are contemplating employing interns, whether during the summer or any other time of the year, you should first consult with your trusted advisor(s) prior to their hire so that they may assist in determining whether the intern should be classified as an employee. When working with Alcott HR Group, our clients can relax knowing that our dedicated HR staff is trained and up-to-date in dealing with newly enacted federal and state legislation.

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