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Is the UN-PAID internship you are offering LEGAL?

Featured in: The Pocket Law Review

With summer just around the corner, start-ups and small businesses turn to unpaid interns to staff projects as a “lean” way to increase manpower. Yet, this can open the door to legal risks and bad publicity. Just ask David Letterman, who faced a suit last year, claiming that interns “did not receive any ‘academic or vocational training’ and worked 40-hour weeks, like full time employees, in order to keep payroll expenses down”.

When the Department of Labor (DOL) investigates internship programs, the agency takes an “all-or-nothing” approach. If an unpaid internship violates just one or two parts of its six-part test , the DOL usually finds that employers have violated the Fair Labor Standards Act (FLSA). Even for interns who may have received academic credit, stipends, and/or free housing as part of their internship program, employers can still be on the hook for penalties and fees imposed, back wages, back payroll taxes, plus IRS penalties and fees. That’s one costly mistake you’ll want to avoid!

Two parts of the test which tend to be the source of most employer violations:

  1. The internship has to be for the benefit of the intern and provide an educational component.
  2.  The employer does not derive an immediate advantage from the intern’s activities.

In other words, the goal of the internship is to provide a real-world training environment for the intern. Not free labor for the employer, where an intern is assigned tasks unrelated to their educational path.

Paying interns a minimum wage, can certainly mitigate your liability. Especially if the business is deriving a benefit from the tasks being performed throughout the internship (as is usually the case). For this reason, most legal advisors, are now compelling companies to offer PAID internship programs.

If you still want to offer an un-paid internship, here are 4 steps to guide you in the process, so you can minimize risk:

Step #1 → Partner with an Educational Institution:

Reach out to the Career Center at your local university, and speak to the Internship Coordinator, whose goal is to assist students find valuable work experiences they can add to their resume prior to graduation. Universities are often looking for reputable employers they can partner with to be able to offer internships. They will often assist employers and students in creating an internship for academic credit, and provide guidance on wether the internship being offered should be paid (according to DOL criteria).

Step #2 →When Posting for the Internship:

1. Make sure it clearly states educational opportunities and training available during the course of the internship.

2. Stipulate that in order for candiates to qualify, they must be currently enrolled in a college or university degree program.

3. Include start and end date for the internship, and a disclaimer that there is no guarantee of a job at the end of the internship.

4. Highlight that it is an unpaid internship.

Step #3 → Create an Internship Agreement:

Consult with legal counsel to create an internship agreement for interns to sign at the time the offer for hire is made. This is a one time expense that will be worth the peace of mind. Having an attorney create this document, provides and extra layer of protection for you and your business. This will allow you to ensure proper guidelines and expectations are being set from the beginning. It also shows you have done your due diligence, not only with the university you have partnered with, but also from a legal standpoint.

Step #4 → Track all Training Provided:

Create a tool (can be as easy as a google doc) for the intern and their supervisor to track all educational opportunities such as orientation and on-the-job training sessions, shadowing & mentoring opportunities, lunch-and-learns, webinars, seminars, etc. that you plan on providing during the course of the internship. Make this tool available to both parties at the beginning of the internship, and have them update the document on a weekly basis. Ask the intern to input their feedback with reflections on what they are learning along the way, and specific developmental goals they have met each week. Ensure management is reviewing this information with the intern during regular check-ins, and have them both sign off on the activities, as they are being accomplished (provide a copy to the school if necessary). This way, you have documented all the training and supervisory meetings the intern had throughout the internship, and you can keep this for your records.

If you have questions about this particualr topic, or you have other HR related questions, please don’t hesitate to contact me here, I’d like to help!

About the Author: Dina Potter is the founder of HR4SmBIZ, a boutique HR Consultancy firm helping minority start-ups and small business clients in the DC Metro area. Click here for a FREE 15 minute consultation.