Is Your Summer Internship Program Legal?

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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With summer just around the corner, some owners may be in the process of offering internships to college students. Internships can offer many benefits to both the companies and the interns. However, too often owners overlook the legal requirements for internships and can get into trouble with state and federal authorities for violating labor laws. Here’s what you need to know.

Do You Have to Pay Interns?

Many companies look to summer interns as free labor. They often use interns to fill in for employees who are on vacation or to handle tasks that would otherwise require hiring additional help. Or they believe that the “training” they provide more than compensates the interns for the work they do. However, using unpaid interns this way may be in violation of the law.

Under the Fair Labor Standards Act (FLSA), an intern must be paid just like any other employee unless you meet the following six criteria, which are found in the U.S. Department of Labor’s Fact Sheet #71 and reiterated here:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

By meeting all six criteria, the intern is not an employee and need not be paid. If you fail one or more of these criteria, the intern is your employee and must be treated like any other employee in terms of minimum wages, maximum hours, and other legal requirements.

How to Structure Your Internship

Here is a list of to-dos that will help ensure an unpaid internship program meets the six criteria to help you avoid law violations and other problems:

• Find out whether your internship can be coordinated through a local college or university. (You can also use the school’s Jobs Office to find a suitable intern.) Working directly with a school may require you to write a formal evaluation of the student’s performance and submit a grade for the work performed. This will help show that you are offering training similar to an educational experience.
• Put the internship terms and conditions in writing. The internship agreement should reflect the six criteria (e.g., that the student understands that there is not necessarily any job offering at the end of the internship). While having an agreement is no guarantee that the government will look favorably on your unpaid arrangement, it certainly helps.
• Designate a mentor – you or an employee – for the student. The mentor/supervisor will oversee the student’s activities, provide feedback, and turn the internship into a learning experience for the student.
• Fix the term of the internship (e.g., six weeks or two months). This will avoid any inference that the arrangement is a trial period for a prospective employee.
• Check with your insurance carrier to determine what type of coverage is appropriate for your intern. If the intern is unpaid (i.e., not an employee), is workers’ compensation required?

If you plan to use an intern this summer, decide whether you’ll pay the student. If you want to offer an unpaid internship, then be sure to consult with an attorney knowledgeable in labor laws to avoid any problems. Have your attorney review your proposed actions, internship agreement, and other aspects of the internship.