I am sure that you are expecting this, but my number one tip for what you should have in place before hiring interns is an Internship Agreement.
True story time:
Yesterday (no exaggeration) a client sent me an email in a panic because a seasonal intern had submitted for unemployment. They had received the Notice of Unemployment Insurance Claim Filed and did not know how to respond. But they created their internship on a strong legal foundation and had a signed Internship Agreement from the former intern. A copy of this letter was the perfect evidence to include in their response and made the situation of their relationship with the student in question clear.
College students and recent graduates are often willing to work as unpaid interns in exchange for gaining valuable professional experience and college credit. Similarly, job applicants may be willing to participate in unpaid training programs required by their prospective employer to gain marketable skills and find work. Intern and trainee relationships can be mutually beneficial, but employers still must either:
Comply with the minimum wage, overtime pay, and other requirements under the Fair Labor Standards Act (FLSA).
Although internships are frequently unpaid, the FLSA does not provide for a specific exemption from its minimum wage and overtime pay requirements for interns. Additionally, an intern’s willingness to work without pay in exchange for experience or training is not relevant to whether the FLSA’s minimum compensation requirements apply.
Ensure all unpaid interns and trainees are not considered “employees” for purposes of the FLSA.
Here’s how you test whether or not your intern is an employee under the FLSA:
Test for Employee Status of Unpaid Interns Under the FLSA aka “Primary Beneficiary Test”. There are five factors that determine whether or not an intern is an employee. None of the five are dispositive and none preclude consideration of other factors.
- The intern and the employer clearly understand that there is no expectation of compensation. An express or implied promise of compensation suggests that the intern is an employee “and vice versa.”
- The internship provides training similar to that given in an educational setting, including clinical and other hands-on training.
- The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The intern and the employer understand that the internship does not include entitlement to a paid position at the conclusion of the program.
The risk is not worth it, so be sure your business has an Internship Agreement in place. If you cannot demonstrate your business’s compliance with the FLSA you (unlike my client) could risk the following:
- Back pay
- Liquidated damages
- Punitive damages
- Attorneys’ fees and costs of the other party
- Taxes not withheld
- Benefits not provided (health, 401k, etc.)
- Workers’ compensation contributions or, if the individual sustains a compensable injury unemployment insurance and benefits
Avoid the liability and move forward with peace of mind when you start your own internship program. Have questions about starting and internship program? Let us know in the Facebook Group!