July 12, 2017 1:30 pm
Hiring an intern may seem appealing if you are looking to add to your staffing needs without having to spend considerably. However, if you are planning to host an intern, you ought to proceed with caution or else risk costing your company lots of money in claims. In the current economy, you may be tempted to offer unpaid internships, but you might actually end up violating minimum wage laws. Your business could face financial penalties if the Labor Department investigates and finds you culpable for unacceptable practices. Here is what you should know to avoid breaking the rules defined in the Fair Labor Standards Act (FLSA).
You might think of interns as a source of free labor, but, you should be familiar with the rules and regulations that govern the way businesses hire interns. Previously, internship was associated with students who wanted to gain valuable industrial experience while willing to forgo pay. The current economic situation, however, has forced an increasing number of highly skilled, experienced workers thinking of joining internship positions. Many of them hope to use internship as a means of gaining entry into better career opportunities, shifting careers, learning new skills, or keeping their resumes relevant.
David L. Gregory, author of the research article, The Problematic Employment Dynamics of Student Internships, argues that many people are willing to take unpaid internships because of the limited availability of paid job opportunities. Moreover, many businesses are struggling to keep up with paying for labor in the current economic environment; many firms, thus, consider internships as a cost effective means of solving labor needs and increasing productivity.
You are at risk of breaking wage and hour internship rules set out by the Fair Labor Standards Act if you do not pay your interns. However, the FLSA allows unpaid internships in certain circumstances based on specific criteria. Accordingly, both of you should understand that the training is similar to that offered at an academic institution or a vocational school. It should be of personal benefit to the intern; your company, on the other hand, should not gain directly from the training. If regular employees are not replaced during the training, but are present to monitor the intern, then you may not be obliged to pay. You are not expected to offer any intern a job after he completes the internship even if the intern meets all these requirements. In addition, you do not have to pay the intern wages for the time he spent in training, as the FLSA will not consider him an “employee”. If your response to any of these requirements is in the negative, you could fail the test and be in contravention of FLSA rules. Due to intricacies involving the tests, you might end up owing the trainees back pay despite having no ill intentions.
Certain factors may require you to pay a trainee. For example, the type of responsibilities that an intern would be handling may necessitate payment. A position that is vital for the normal operations of the business, and which requires putting in many hours, should attract some form of financial compensation. Unfortunately, the FLSA is unclear about the kind of work that should receive pay during internship. Besides, the Department of Labor only mentions that it is “generally permissible” to hire unpaid internships, but it does not define what it means by that. This opens loopholes for unpaid interns to institute FLSA claims.
While the DOL may offer some respite to you using the six criteria, the courts might interpret and enforce these rules differently. The move might make the tests suggested by the FLSA redundant. In fact, the Justice Department is suggesting alternative standards to deal with interns, known as a “primary beneficiary” test as a surrogate for the DOL’s six-part test.
Under this test, you cannot let interns waive their rights to legal protection. You might be thrilled to have an intern who is willing to work without pay, but do not be surprised if he later approaches the DOL with claims that you refused to pay him. If the DOL learns about it, it may institute an audit of the entire firm, which might hurt your company’s reputation.
Another test is that the intern is considered an employee if he does more than simply ‘job shadowing’ (just observing and doing nothing).
In most cases, it would be safer if you pay the person for any job done; even minimum wage is fine if you want to keep costs down by hosting an intern.
In the past, the DOL focused on other employment issues relating to regular employees. The department is shifting its attention toward violators of the FLSA rules regarding interns because of the economic challenges facing many firms and the fact that unpaid interns are getting paying jobs meant for skilled and experienced people.
Interns should get benefits, rights or resources whenever they work in your company especially if you cannot provide evidence that an employment relationship is nonexistent. For example, you should pay an intern at least the minimum wage as well as overtime reimbursement if he replaces a regular worker. An intern may fill in for a regular employee who is indisposed due to illness, for instance.
You should not use unpaid internships as a trial period for evaluating whether individuals are fit for a job. If you do, the DOL can consider it evidence that you have established a legal employment relationship. You may find an intern highly competent in a specific job, and you might consider formally giving him the position. While this may be an advantage, you may risk making back pay and back taxes for the time the individual was working as a trainee. This could translate into hundreds, if not thousands, of dollars in backdated penalties.
Staying in compliance with the FLSA rules can help you avoid stressful situations and maximize the advantages of having an intern at your firm. Many individuals may not be aware of the DOL rules regarding paid internships. Others may be aware, and they might not have any ill motives to make claims. Some interns may fail to keep their word regarding working without pay. To safeguard yourself and your company against lawsuits regarding such situations, you should try, for example, to use written documentation to make the arrangement formal. Write down the role of the intern in the form of an offer letter. In addition, ensure that the intern is conversant with the workplace policies regarding his situation during the training period. If a position has key responsibilities and requires considerable input from an intern, you should never consider it an unpaid role. The safest way to go is to make it automatic to have interns get at least the minimum wage and other benefits. In effect, you will have sealed any other loophole that may emerge later.
This blog post is intended for informational purposes only and does not constitute legal advice. No attorney-client relationship is created between the author and reader of this blog post, and its content should not be relied upon as legal advice. Readers are urged to consult legal counsel when seeking legal advice.