Submitted by Mike Padgett

The approach of summer will bring thousands of college students seeking internships to employers’ doors. Recent college graduates and other unemployed workers also will seek internships in order to get their feet in the door for regular employment.

While many private-sector employers pay interns as employees in accordance with legal requirements, others, inadvertently or by design, do not. Instead, labeling them as trainees, assistants, or learners, they provide little or no pay for the work performed. What many employers do not realize is that they generally must pay at least the minimum wage to their interns under federal and state rules, unless an internship meets certain conditions. Employers who do not carefully structure unpaid internships risk exposing their organizations to financial liability.

The federal Fair Labor Standards Act (FLSA) defines an employee broadly as “any individual employed by an employer.” The FLSA definition of employ includes “to suffer or permit to work.” In 1947, the U.S. Supreme Court held that the FLSA definition does not make employees of all persons who, without any express or implied compensation agreement, may work for their own advantage on the premises of another. Walling v. Portland Terminal Co., 330 U.S. 148. This may apply to interns who receive training for their own educational benefit if the training meets the following six criteria):

  • The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
  • The internship is for the benefit of the intern;
  • The intern does not displace a regular employee, but works under close observation of existing staff;
  • The employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, the employer’s operations may actually be impeded;
  • The intern is not necessarily entitled to a job at the completion of the internship; and
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The U.S. Department of Labor has consistently applied these factors in response to questions about the employment status of interns. State departments of labor often have similar standards and plaintiffs’ wage and hour lawyers, who constantly seek new areas for claims, have begun to file legal actions challenging organizations’ use of unpaid interns to perform productive work. Whether or not interns at your organization are employees under the FLSA will depend upon all the circumstances surrounding their activities.

Employers who are planning to hire unpaid interns must review carefully federal- and state-law criteria for determining whether a worker is an employee. If an intern should have been paid as an employee, the employer may be liable not only for wages, but also for any overtime pay, employee benefits, meal and rest periods, and penalties. To the extent employers wish to utilize unpaid interns, programs should be developed and documented that satisfy the above factors. Practical suggestions include limiting the amount of productive work performed or rotating the interns into different areas of the business to highlight the training or observation focus of the program.