Free interns have been a fixture at small and medium-sized businesses for years. Recently, the number of free internships is skyrocketing, in all probability due to the current economic situation. Paying jobs are harder to find, especially for college students, as companies look to cut costs. Even the largest companies are beginning to tap into this abundant pool of free labor.
However, just because you create an unpaid position and there is a college student willing to fill it, it does not mean that the law will sanction your arrangement. Under the Fair Labor Standards Act (FLSA), if an “employment relationship” exists between a “for-profit” employer and its worker, in most situations, the employer MUST pay the worker at least the wage federal minimum and overtime pay. State and local minimum wage and overtime laws may also apply. The federal and New York minimum wage is $7.25 per hour, while the California minimum wage is $8.00 per hour worked. One way that companies can try to avoid paying these salaries is to classify your intern as an “apprentice” under the Act, but this is not as simple as it seems. In addition to the six factors discussed below, California requires that interns receive college credit if they work in an unpaid position.
The Employee vs. Trainee Distinction: Six Factors
The definition of an employment relationship and an “employee” is very broad under the FLSA, so the guidelines that a worker must meet to be considered an “apprentice” are limited. The Wage and Hour Division (WHD) of the US Department of Labor has developed six criteria for evaluating whether a worker is an apprentice for purposes of the FLSA, which you must be careful to follow.
1) The training, while including the actual operation of the employer’s premises, is similar to that which would be given in vocational school or academic educational instruction.
Your company most likely provides “on-the-job” training, rather than classroom instruction, to your interns. If your internship program provides the individual with skills that can be used in multiple employment settings, rather than particular skills just for your operation, then on-the-job training is not necessarily an issue. Be careful, though, as your intern should not be doing routine work on a regular, recurring basis, and your business should not be dependent on the intern’s work. Also, keep in mind that making coffee, sweeping bathrooms, and “cleaning doorknobs every day to minimize the spread of swine flu” (as stated in a recent New York Times article) will not be considered activities of appropriate training.
2) The training is for the benefit of the students.
Your internship program should put the education of trainees as its top priority. If your interns are involved in your operations or doing productive work (for example, filing, other administrative work, or helping customers), they may not be excluded from the FLSA’s minimum wage and overtime requirements. Your argument that they are receiving benefits in the form of new skills or better work habits will not convince the WHD, because their business is benefiting from the work of the interns.
3) Trainees do not replace regular employees, but work under their close observation.
If an employer uses interns to replace regular workers or to bolster its existing workforce, these interns must be paid in accordance with the FLSA mandates. The safest course under the FLSA is to assign interns job shadowing opportunities, allowing them to learn under the close and constant supervision of regular employees, while doing minimal or no work.
4) The employer providing the training does not gain immediate advantage from the activities of the trainees and, at times, the employer’s operations may be hampered.
This is very similar to the second factor, which requires the intern to get the main benefit of the program. However, it goes further and expressly states that the efficiency of your business cannot be used as an excuse to circumvent these guidelines. The WHD’s argument that educating your intern makes your employees less productive, therefore the intern needs to “make some weight” will not succeed.
5) Apprentices do not necessarily have the right to a job at the end of the training period.
Unpaid internships should generally not be used as a trial period for job seekers. If an intern is placed with the employer on a probationary period with the expectation that they will later be hired permanently “if things work out,” that person would generally be considered an employee under the FLSA.
6) The employer and trainees understand that trainees are not entitled to receive wages for time spent in training.
This requirement is relatively straightforward, but the law requires you to be clear with your students. You should have a well-written job description for all applicants and an offer letter to send to the interns you have selected, clearly stating that the position is unpaid.
Only if all six factors above are met will the worker be considered an apprentice, who is not legally required to be paid.
Compliance: Why You Should Care About the FLSA
I know many of the CEOs reading this are scratching their heads, because they’ve been hiring interns for years and they’re violating at least half of the six factors above, with no consequences. Now may be the time to change your ways. California and New York are actively investigating employers. California has already issued fines and is issuing “guidance letters warning employers if they are breaking the law.” The WHD is “intensifying enforcement across the country” and the consequences of non-compliance can be severe. Violation of the FLSA may be prosecuted as a criminal action and subject to fines of $10,000. A second violation could land you in jail—yes, federal prison! Additionally, you could face civil penalties of up to $1,100 per violation. Also, if the Secretary of Labor has not sued you first, your former “free” employee may have up to three years to sue you for a willful violation of the FLSA. If he or she wins, they may be entitled to recover double the amount owed, attorneys’ fees, and court costs.
Conclution
Free labor can seem like a godsend for your business, especially in the summer, the three precious months when students are available. However, you should think twice before you hire that free intern and work him like a full-fledged employee. Also, you should think twice if you simply want someone to bring your coffee, pick up your dry cleaning, or clean the bathrooms. The misuse of free labor could turn out to be more expensive than you imagined.
For additional information, feel free to review this article in the New York Times.
© Clem Turner, 2010. All rights reserved.