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Making Student Internships Work for Your Organization

Understand the differences between interns, student learners, and volunteers

Since the economic downturn of 2008, many career counselors have suggested that recent young college graduates get a foot in the door at prospective employers by offering to work for free as unpaid interns. This may sound like a win-win situation, in that it gives the graduate and his or her potential employer time to assess whether they are a good match for each other while simultaneously allowing the organization to derive some benefit from the intern’s unpaid labor.

Not surprisingly, the practice of hiring unpaid interns has mushroomed in recent years. The use of interns cuts down on labor costs for the employer, and anxious graduates are willing to sacrifice immediate economic gain for valuable and relevant experience.

As beneficial as this might appear, internships do raise concerns with the U.S. Department of Labor (DOL). If the intern is truly unpaid or receives a stipend that is lower than minimum wage, the DOL can assert that the intern is an employee entitled to minimum wages under the Fair Labor Standards Act (FLSA). The employer can then be charged for violation of the act.

Recent years have seen a strengthened enforcement program within the DOL’s Wage and Hour Division crack down on organizations that take on unpaid interns and use them to replace paid workers.(1) The rules for unpaid interns require the employer to gain very little out of the relationship—so little, in fact, that one might call it a benevolent contribution to the intern. Under DOL rules, the employer must offer a great deal of supervision to the intern and cannot gain any immediate advantage from the relationship (see right-hand sidebar).

The requirements of internships are worth noting. For example, the employer must be able to prove that the intern is not displacing or substituting paid workers. If the employer “would have hired” additional employees were the interns not present, then the interns must be paid. In short, the intern must not benefit the employer in a recognizable way and, because of supervision requirements, must almost create more work for the organization. Otherwise the intern is no longer considered an “intern” and must be paid at least minimum wage as an employee.

Despite the DOL’s stringency, some federal courts have ruled that it is okay if an intern is given the expectation of a job at the end of the internship, so long as the remaining criteria are met.(2) However, employers should be forewarned that plaintiffs’ attorneys have been aggressively pursuing cases where interns should have been paid minimum wage and overtime under the FLSA. The resulting costs to an organization for a re-classification can be substantial.(3)

Student Learners

The DOL does recognize “student learners,” who may be paid subminimum wages if the employer has applied for and received an authorizing certificate from the DOL. To qualify, student learners must be receiving instruction in an accredited school, college, or university and also be employed on a part-time basis pursuant to a bona fide vocational training program.(4)

Volunteers

Nonprofit organizations are allowed to take on unpaid interns as volunteers under the FLSA, which states that, “an individual who performs hours of service for a public agency for civic, charitable, or humanitarian reasons, without promise, expectation, or receipt of compensation for services rendered, is considered to be a volunteer during such hours.”(5)

Volunteers may be paid expenses, reasonable benefits, a nominal fee, or any combination thereof for their service without losing their status as volunteers.(6)

The DOL ordinarily considers the following factors when determining if a person is a volunteer and not an employee:

  • the receipt of any benefit by the organization for which the services are performed;
  • the time spent in the activity (the activity is less than a full-time occupation);
  • the services are of the kind typically associated with volunteer work; and
  • the individual does not expect pay for the services.(7)

I believe that the above criteria and the six criteria established by the DOL’s Wage and Hour Division appear to be “a distinction without a difference.” The primary difference is that the employer is an exempt organization under the code and is thus allowed to accept unpaid labor from qualified workers.

Organizations that use student or intern volunteers must be careful to track their time for reporting purposes. Under Generally Accepted Accounting Principles, their donated time may be considered as an “in-kind” donation to the organization.(8)


ENDNOTES:

1. Greenhouse, Steven, “The Unpaid Intern, Legal or Not” The New York Times, Apr. 2, 2010.
2. See 29 U.S.C. Chapter 8 FAIR LABOR STANDARDS. Not all courts agree that trainees must meet all six factors. In Reich v. Parker Fire Protection Dist., 992 F.2d 1023 (10th Cir. 1993), the 10th Circuit federal court determined that, even though an employer’s trainees expected to be hired at the end of the training, because they met the other five factors they were not employees subject to the FLSA.
3. In a 2013 case, a court found that two interns should have been classified as paid employees. Using the DOL’s six factors and considering the totality of the circumstances, the court found that the interns did not receive any training or education to help them acquire new skills during their internship. Benefits, such as resume listings or job references, were simply incidental, and the internship primarily benefitted the employer, not the interns. It also found that the interns did basic administrative tasks, such as organizing files, photocopying, and running errands, that otherwise would have been done by regular employees. Glatt v. Fox Searchlight Pictures Inc., 2013 U.S. Dist. LEXIS 82079 (S.D.N.Y. 2013)
4. The regulations addressing the application process and employment of student-learners at subminimum wages are contained in 29 CFR Part 520.
5. “Individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious, or humanitarian objectives, not as employees, and without contemplation of pay, are not considered employees of the religious, charitable, and similar not-for-profit organizations which receive their services” Wage Hour Admin. Op. Ltr. (9/30/99).
6. 29 C.F.R. §553.106(a)
7. Wage Hour Admin. Op. Ltr. WH-369 (12/3/75)
8. See Statement of Financial Accounting Standards N. 116 (SFAS 116).
 

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