Hiring Unpaid Interns This Summer? Here’s What You Should Know.

For many owners and managers, the prospect of bringing on a student intern — especially an unpaid one — for help checking off a few long-delayed tasks seems like too good of an opportunity to miss.

But, when bringing an intern or temporary employee in, it’s important to make sure that you’re classifying that person correctly from day one, and that you’re adhering to the legal requirements of that classification throughout the duration of their internship or employment.

In this article, we’ll explain how you can tell the difference between a legitimate unpaid internship and temporary workers who must be paid. 

Free Download: Make sure your next hire is a Difference Maker with the CEDR Hiring Guide

Internships Are a Common Point of Confusion

In the CEDR Solution Center, we regularly field questions from our members about having someone volunteer or do an unpaid internship. 

Sometimes this comes about because an internship is a requirement of an educational program and a student comes to a manager or business owner with written material from their school laying out how the internship is intended to work. In most cases, that’s going to be a pretty clear-cut unpaid internship situation. 

It gets much trickier when someone approaches you because they personally want to “intern” with your practice. When this happens, it’s usually a patient, the child of a patient, or a family friend interested in pursuing a career in healthcare and looking to gain some first-hand experience in the field. 

We love hearing about forward-thinking individuals wanting to really vet out a career. We also love hearing from business owners who want to help out when they can. 

But, as with most things, there’s a law for that! Best intentions don’t get around the law, which very often stops the “internship” relationship from happening.

Intern or Employee: How Do You Know?

The Fair Labor Standards Act requires employers to pay their workers. Employers can’t “get out” of this obligation by saying that the person volunteered to work for free; an employee cannot absolve you of your obligation to pay them as an employee. 

However, the FLSA does have a carveout for true unpaid internships. It does this through a seven-factor balancing test. Before you even start evaluating whether the person you hope to bring on board will fit the mold, this should send the signal that the DOL has a pretty high standard for having a true unpaid internship . 

The goal of the test is essentially to answer this question: Who benefits the most from this relationship? 

For it to qualify as an unpaid internship the answer needs to be “the intern.” The purpose of the relationship needs to be the business providing an education to the intern – not the intern performing work for the business.  

The test itself requires you to consider on balance each of the following factors:

1. “The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed or implied, suggests that the intern is an employee—and vice versa.”
   1. Translation: This test is meant to be used to determine if a relationship meets the requirements to be an unpaid internship, eliminating the FLSA requirements for paying employees. If you are paying this individual, or there’s any type of pay expectation, they’re generally going to be an employee regardless of whether their time with you also gives them some type of academic credit.
2. “The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.”
   1. Translation: Your intern’s tenure at your business should be more about educating that person than putting them to work for your business.
3. “The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.”
   1. Translation: There’s a presumption generally built in here that the internship is part of an academic program.
4. “The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.”
   1. Translation: The timing of the internship correlates to academic credit and other academic requirements. Their school schedule, rather than the business’ needs, is the intern’s priority.
5. “The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.”
   1. Translation: The duration of the internship is defined, and the entirety of that time period is spent as an educational program. It does not turn into the intern providing unpaid labor once you’ve completed training them.
6. “The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.”
   1. Translation: The focus is on educating the intern – not putting them to work for your business.
7. “The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.”
   1. Translation: An internship cannot take the place of training a new employee and is not a trial period to determine if you would like to hire someone as an employee.

Support from an Accredited Academic Program is Critically Important

As you can see, factors three, four, and five of the DOLs seven-factor test are focused on the internship being part of an academic program. That’s three out of seven factors, which should tell you the level of importance the DOL places on unpaid internships being part of an academic program. 

If someone comes to you asking for an internship, ask them for written material about their internship requirements from their school. 

For this to be done right, their academic institution should reasonably be expected to have something in writing for both you and the intern describing the parameters of the internship so that you can assess whether or not you are able to provide whatever it is that the intern needs. 

The school should also have some type of agreement for you to sign that lays out the various responsibilities. Notably, the internship agreement should state that an intern will be covered by their school’s insurance in case of injury.

What if there is no Academic Program?

Not having an academic program to tie this to eliminates meeting factors three, four, and five of the test. However, this is a balancing test, so there are still four other factors to consider. But this is where you get into much more dangerous territory. 

The DOL is going to place a high level of scrutiny on any type of independently created internship program to protect individuals from not being paid when they’re really acting as employees. 

The reality is this: If they’re coming to you wanting to “intern,” but it’s not connected to an academic program, then they’re not offering to be an unpaid intern – they’re asking you to create a whole internship program. 

Remember: the primary beneficiary of the internship has to be the intern, not the business. 

The focus of the internship has to be educational. This means you are providing the type of training that the intern would expect to receive in an academic class. 

Their educational experience could include performing some work that employees otherwise would be doing, but that cannot be the majority of what the intern does each day. 

If anything, having an intern there should be more of a disruption than a help to the business. 

But my friend’s nonprofit has tons of interns who are basically just regular workers! 

The DOL’s seven-factor test applies to for-profit employers. There is an entirely separate set of rules that apply to certain government agencies and nonprofits. 

What About Hiring Students as Independent Contractors?

Because of the temporary nature of such an employment situation, many employers think that a simple solution is to hire a seasonal student employee as an independent contractor. This is not the correct solution. 

If you’re surprised that temporary employees typically don’t qualify as independent contractors, you’re not the only one. Not only is this an issue that comes up frequently between CEDR Members and the expert HR advisors in our Solution Center, but it’s also one of the most common wage and hour violations investigated by the DOL.

To qualify as an independent contractor, a worker needs to pass a number of tests related to the relationship they have with the business, how much control the worker has over how they perform their duties, as well as if those duties are commonly performed by other employees as part of your business.

The length of time someone works for you isn’t what’s important in these tests – it’s what the individual is doing for you. If they’re doing normal work that would otherwise be done by an employee, then they’re an employee. The only exceptions would be contracting with a third-party company to help you out with those things. But a student looking for some summer work is not a company providing you with contracted premium services. 

For more information on why temporary employment doesn’t make someone an independent contractor, contact the CEDR Solution Center or refer to The CEDR Guide to Employee Classification and Wage Compliance.

Conclusion

If you’re ready to work with an accredited academic program to teach and inspire the up-and-coming professionals in your field, hosting an unpaid intern may be a good option for you. 

If you’re simply hoping to get a few extra projects checked off of your to-do list, however, expect anyone you bring on to be classified as an employee and to be paid at least minimum wage — which is likely a small price to pay to get caught up on those tasks you’ve been keeping on the backburner.

Need additional help setting up an internship or classifying employees for your business? Reach out to the CEDR Solution Center or crowdsource answers to your questions in our private, professional Facebook Group, HR Base Camp.