Posted on / Updated on / in Blog /

Why Summer Interns Can Be More Expensive Than You Think

It’s that beautiful time of year – when eager college students are looking for something to occupy their summer without making a serious commitment (or a serious dent in your company expenses.)

It’s summer internship season.

While summer internships seem like a bulletproof plan (cough, free labor, cough), there is a lot that can go wrong.

First of all, you have to make sure your internship program follows federal and state labor laws or you could be looking at a rather large lawsuit initiated by that eager intern’s overbearing parent who happens to be a savvy lawyer.

If you think this won’t happen to you, think again. In the past few years, a number of interns (all who worked for media companies in New York) sued their former employers, claiming that they should have been classified as employees under state and federal wage and hour laws because their duties were a crucial component of the work force. The plaintiffs argued that if the companies did not use interns they would have had to hire employees to perform these entry-level tasks. So the plaintiffs are seeking recovery wages for all hours worked, including overtime pay. Ouch!

Starting to rethink your summer internship program? Don’t!

The Department of Labor has made it pretty easy to check and see if your internship is legal or not. You just have to know the guidelines and that’s why we’re here!

Let’s start with the employer favorite – unpaid internships. 

The Six Criteria of Unpaid Internships

There is a nifty test provided by the Fair Labor Standards Act (FLSA) to help you classify an intern’s status.

Under the FLSA, an internship must meet six criteria to qualify as unpaid:

  1. 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.
  2. The internship experience is for the benefit of the intern. An unpaid intern cannot routinely perform business activities, especially if these activities are ones typically performed by a paid employee.
  3. The intern does not displace regular employees, but works under close supervision of existing staff. Interns who shadow employees and do not engage in regular work are more likely to qualify as unpaid. Interns doing work that regular employees perform (and receiving the same level of supervision) are seen as employees and entitled to compensation under FLSA.
  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. If the expectation that an employment offer will follow the conclusion of an unpaid internship, the internship can be viewed as a trial period and the unpaid intern as an employee under FLSA.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship. The internship’s duration or end date also needs to be set prior to the beginning of the internship.

Does your internship program meet all six criteria?

In case you still aren’t sure, the DOL recently released a statement to clarify. It stated, “the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience,” and, therefore, the more likely it is that the individual will properly be considered an intern, as opposed to an employee.

To Pay or Not To Pay

If your internship does not meet the six criteria above, the internship likely establishes an employment relationship. This means that you need to follow a different checklist.

Now that your intern will be viewed as an employee under FLSA, you have to pay him or her at least minimum wage and follow a few more rules.

Here is the Paid Internship Checklist:

  • Record personal information. Add new interns’ personal data to employee records and update the personal information of returning interns.
  • Automate overtime with a system that integrates time and attendance information with payroll data to ensure overtime calculations are made correctly and overtime pay is paid during the appropriate pay period.
  • Review overtime procedures and policies with interns and their supervisors prior to the start of the internship.
  • Discourage comp time by requiring interns to record all hours they spend performing job-related tasks.
  • Double-check all child labor regulations are met if the paid intern is considered underage. 

What Employers Should Do Now

At Integrity HR, we are always promoting best practices and that is why we think companies in both the for-profit and non-profit sectors should carefully evaluate whether their existing internship programs comply with FLSA and state law standards.

The DOL’s six-factor test can be difficult to satisfy, particularly where the intern provides some useful service to the employer that otherwise would have been provided by an employee.

If an individual fails to meet the applicable tests for intern status, then the employer needs to treat the intern as an employee for purposes of state and federal wage and hour laws. This means that the intern will need to be paid at least the minimum wage for all hours worked, plus any overtime due.

In addition, employers will need to make sure that they keep proper records of the hours worked by interns/employees, as well as comply with any meal and rest break requirements imposed by state law.

Finally, employers should train their managers who deal with interns to make sure that they are ensuring compliance with these requirements.

So….Are Unpaid Internships Worth The Risk?

Unpaid internships are a beautiful thing. They offer students and career-switchers great opportunities to gain experience in their field. They can also benefit employers by providing a fresh (albeit inexperienced) prospective on the industry.

That is, if you keep it legal.

Now, go inspire young minds and mold those future leaders!

 

 

Budgets are tight. What are you doing to help your bottom line?
Top 5 Reasons HR Outsourcing Improves Your Bottom Line

Our team talked to business leaders who have taken the step to outsource HR and provided real world insights and learnings in this free resource. Learn more about how HR Outsourcing can impact your bottom line, and see if it is a good fit for your business.

New call-to-action

about the author: Amy Letke

Amy Newbanks Letke, SPHR, GPHR, is the Founder of Integrity HR, Inc. Amy provides workplace solutions to improve performance, reduce liability and increase profits. She is passionate about helping other entrepreneurs and business owners achieve success.