Grow Your Business by Hiring an Intern

            Ready to move forward with hiring extra help but concerned with strapping yourself with another paid employee? Hiring an unpaid intern may seem like the perfect option, but it comes with some legal risk due to the Fair Labor Standards Act (FLSA).

            If you are a “for-profit” private sector employer, the reason an unpaid intern can be problematic is because the U.S. Department of Labor (“DOL”) has promulgated certain criteria for determining whether interns must be paid the minimum wage and overtime wages under FLSA. The six criteria only apply to “for-profit” firms and do not apply to non-profit firms or government organizations. Individuals at non-profit firms and government organizations are considered “volunteers,” and are therefore excluded from the definition of interns  To be excluded from the requirement to pay minimum wage and overtime under the FLSA, an internship program of a “for-profit” employer must meet the following six requirements:

1. The internship must be similar to training which would be given in an educational environment;
2. The internship experience must be for the benefit of the intern;
3. The intern must not displace regular employees and must work under close supervision of existing staff;
4. The employer must not derive immediate advantage from the activities of the intern (occasionally, the employer's operations may actually be impeded);
5. The intern must not automatically be entitled to a job at the end of the internship; and
6. Both employer and intern must understand that the intern is not entitled to wages.

The DOL advises: “If all of the factors listed above 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.” Although it is far from clear that each of these factors is statutorily required to avoid employee status, the DOL has taken the position that all of the foregoing criteria must be met. In fact, a few years ago, Nancy J. Leppink, then-acting director of the DOL's Wage and Hour Division, warned that “[i]f you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.” Thus, to ensure a positive outcome for both parties, any employer would do well to heed the forgoing warning and to keep the six criteria in mind when creating or continuing internship programs.

            Upon hiring an intern, it is important that they sign certain paperwork to protect the business. This includes first and foremost a Internship contract that details they are not to be considered an employee at all and defining their responsibilities as an unpaid intern. Your agreement should also include a confidentiality and non-disclosure provision as well as a disparagement provision.

            For tax purposes, an intern does not have to fill out an IRS I-9 Form. However, interns can be reimbursed for expenses and given a small pay of no more than 20% of what you would pay to a regular employee without losing their status as an unpaid intern.

            Hiring an unpaid intern through your local university is a great way to get help with your business, provide thorough training to potential employees, and build your business's team for future success. But you should be prepared to invest time and management of the intern.  If you have any questions about hiring an unpaid intern or paperwork to protect your interests in this process, contact the Business Law Group for a consultation.