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How to Stay in Compliance When Hiring Interns | EG

Posted by Early Growth

September 1, 2015    |     5-minute read (831 words)

This guest post was contributed by Justworks.

Hiring an intern at your company is a great way to give a college student or new professional some hands-on experience in your industry. Companies often hire interns to do low-level work in exchange for the opportunity to gain a foothold in a new industry and learn “how things work” from behind the scenes. Recently, even Hollywood got in on the act with the Owen Wilson and Vince Vaughn comedy The Internship.

However, many companies have historically hired interns on an unpaid basis in order to save costs on jobs that would otherwise go to entry-level employees. Experts estimate that up to 50% of the 1.5 million internships in the US this year will go unpaid. Though very common, the practice of employing unpaid interns may actually violate state and federal labor laws. Here's how to hire interns, the legal way.

The Law on Unpaid Interns

The Fair Standards Labor Act lays out a 6-point test outlining how a for-profit business may employ an intern without pay. The law does not apply to nonprofits, which are free to accept volunteer work.

The 6-Point Test for Hiring Unpaid Interns

  • The internship must be similar to training that would be given in an educational environment
  • The internship must be for the benefit of the intern
  • The intern does not displace regular employees
  • The employer derives no immediate advantage from the intern
  • The intern is not entitled to a job at the end of the internship
  • The intern understands that he or she is not entitled to wages.
The Act itself was authorized by Congress all the way back in 1938, to protect railroad workers. Many consider it outdated and recent class-action lawsuits may usher a revised law into place.

Additionally, many states, including New York, have their own set of regulations on unpaid interns.

Former Unpaid Interns Suing Employers

Recently, some high profile class-action lawsuits have been brought against companies by former unpaid interns.

  • In December of 2012, the Charlie Rose TV Show, part of PBS, settled a class-action lawsuit brought by 189 former unpaid interns for the sum of $250,000.
  • This past summer, Fox Searchlight Pictures lost a key ruling against two former interns on the movie “Black Swan.” Fox is one step closer to paying millions in fines and back pay to former unpaid interns from across the country.
  • Laura O'Donnell, a lawyer at Haynes & Boone in San Antonio who represents management in labor disputes, warns that “this trend is probably going to expand beyond media companies and beyond New York. I think employers in all industries across the country need to take note."

  • Protect Your Company When Hiring Interns

    If your company has hired unpaid interns in the past, or currently employs them, you should consult a lawyer to determine how best to protect your company legally.

    If you’re still in the planning stages of hiring an intern, fortunately you have a couple of options for complying with the letter of the law.

    Reevaluate interns' responsibilities and ensure they pass the 6-point test for unpaid work. Offer them a wholly educational experience in which your company “derives no immediate advantage.” In exchange, you get the opportunity to vet an intern’s work up close, which can better inform a hiring decision.

    Pay the intern a stipend based on minimum wage, around $10 per hour, as a part-time employee, limited to 20 hours per week. Your company will still be giving the intern valuable real-world experience inside of your industry, so s/he should be willing to work for less than an experienced full-time employee with benefits.

    Partner with an organization that offers apprenticeships, to train the upcoming workforce with real world skills and show you how your team can be a mentor. A great resource Is enstitute, an organization that is committed to helping the young workforce gain more experience, to increase their value in the business world. Shaila Ittycheria, co-founder of enstitute, is focused on this main premise. “Rather than simply letting the name of an academic institution define someone’s worth, Shaila hopes to build a system that maximizes value by focusing on skill based knowledge, developed competencies, and proven work experience.”

    Whichever option you choose, it’s best to take a proactive legal approach when hiring interns. These days, with experts predicting more lawsuits from former unpaid interns, it pays to be cautious. When in doubt, be sure to consult a lawyer.

    Have questions or need help with financial compliance issues? Tell us about it in the comments section below or contact Early Growth Financial Services for a free 30-minute financial consultation.

    Justworks is a technology platform that helps entrepreneurs grow and manage their businesses by offering a comprehensive one-stop-shop approach for self-service payroll, compliance, and benefits (including health insurance, commuter benefits, and 401k).

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