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Understanding Legalities of Unpaid Internships: A Practical Guide for Summer Interns

The word “intern” usually conjures up mental images of a frantic college co-ed fetching coffee, bringing clothes to the dry cleaner, filing endless stacks of paper, retrieving lunch, walking the boss’s dog — basically doing all the things that no one else wants to do. Most people think of interns as free labor, with payment in the form of a reference letter and professional experience. The intern is usually the least controversial person in the office, yet internships are at the heart of a highly controversial debate: should you or shouldn’t you pay the intern?

At Ravix Group, we offer outsourced HR consultancy in San Francisco to help you answer this and other quandaries related to staffing.

When Is an Unpaid Internship Allowed?

If you are considering hiring an intern and not paying them, the internship must meet the following criteria according to the Fair Labor Standards Act (“FLSA”):

  • 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.
  • The internship experience is for the benefit of the intern.
  • The intern does not displace regular employees but works under close supervision of existing staff.
  • 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.
  • The intern is not necessarily entitled to a job at the conclusion of the internship.
  • The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If all  these conditions are met, an “employment relationship does not exist under the FLSA and the Act’s minimum wage and overtime provisions do not apply to the intern,” according to the FLSA.

Restrictions for the Use of Unpaid Interns (Don’t Do This!)

Simply put, if you want to bring in an unpaid intern, this is what you cannot do:

  • Use an intern to perform “productive work” that will immediately benefit the company (examples of this would be filing, greeting visitors, scheduling meetings, etc.). If you do want to use an intern for this kind of work, then they need to be paid at least minimum wage (federal or state, whichever is higher) and be eligible for overtime requirements.
  • Use interns as substitutes for regular workers or to bolster the existing workforce during certain time periods. If the employer would have hired additional employees or required existing staff to work extra hours had the intern not been there to help, then the intern should be seen as an employee and therefore be compensated as such. For example, you cannot hire an intern to take the place of a regular employee who is on maternity leave and not pay them.
  • Have the internship be for an unfixed period. Unpaid internships must be for a fixed duration established before the internship begins. If the employer is using the internship to see if the intern would be a good fit for a job afterwards, that intern should generally be considered an employee and be paid accordingly.

Can I Pay My Intern With College Credit?

In general, unpaid internships must be structured like an academic and/or training experience. This kind of internship teaches the intern skills that they can use in multiple employment settings; not just skills that are applicable to the current employer’s operations.

Oftentimes, businesses want to pay an intern in “college credits.” To be able to do this, the college usually has to offer some kind of specific internship program within the student’s degree field. Again, the internship must be educational to be considered for academic credit. Unfortunately, students still have to pay the course credits for these college internship programs, which means they are basically paying to intern.

If I Do Pay My Intern, How Much?

If you want your intern to be considered exempt, the intern needs to be paid a salary of at least $684 a week and meet the “duties test” for at least one of the FLSA’s White Collar Exemptions. In the majority of instances, interns will not be exempt.

If your intern is non-exempt, they have to be paid at least minimum wage (the higher rate between state and federal), receive overtime when they work more than eight hours in a day or forty hours in a week, and be allowed to take meal and rest breaks according to state law.

Oftentimes, pay levels for internships depend on the intern’s level in school, with college seniors commanding higher rates than freshmen. Normally, engineering or computer science interns are paid even more than the average. High school interns, although rare, are usually paid minimum wage. If you do have a high school intern or any intern/employee less than 18 years of age, they need to obtain a work permit from their school or district office. This not only applies during the regular school year, but also during summer breaks.

When in Doubt…Please Pay the Intern

Pay your intern. You don’t want to leave yourself open to lawsuits or even have the reputation of being miserly. If you aren’t convinced, think of it this way: interns who are paid throughout their stay at a company have a happier outlook on their experiences. They are motivated to work harder and feel generally more appreciated and rewarded by their employers. Additionally, you can consider outsourcing your HR services like labor law compliance, employee relations, and benefits administrations to ensure that you avoid mistakes that cost you money.

Do you have other questions regarding employee compensation and your legal requirements? Ravix Group is one of the best HR outsourcing companies. Contact us online or call (408) 216-0656 to set up a consultation for human resources consulting in San Francisco.