The Innovative Workplace
Structure internship programs so that the risks are lessened and the rewards provide a great experience for everyone
It’s that time of the year when employers across the country are considering requests from students looking for jobs. Some students are happy to accept any type of job, including working for no pay just to get job experience to put on their résumés. Thanks to the Department of Labor’s (DOL) new guidance issued in January 2018, employers have more flexibility to offer those types of opportunities.
According to the DOL, “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”
From a risk management perspective, this is good news if the unpaid internships are structured to meet the new guidelines. Wage-hour audits can be triggered based on claims of unfair pay due to worker misclassification. This could include small wage claims for improperly classified interns triggering a full-scale audit of a company’s payroll practices. There are other potential legal and administrative pitfalls that many employers overlook. By identifying and managing these risks, you can help your clients avoid liability, employee relations issues, and administrative hassles when hiring interns at any time of the year.
Background on the regulatory changes
Based on feedback from employer groups and federal court rulings, the DOL outlined new rules that establish a “primary beneficiary test” to validate unpaid work programs that help the student more than the company. The focus includes factors based on the total job experience in determining whether the work is compensable and interns should be classified as employees according to the Fair Labor Standards Act (FLSA). According to the DOL, “whether an intern or student is an employee under the FLSA necessarily depends on the unique circumstances of each case.”
Old rule had “all-or-nothing” requirements
The reason for the change goes back to 2010, when the DOL required six factors to be met before it was safe for an employer to offer an unpaid internship. The agency stressed that most internships in the private for-profit sector would be viewed as employment for pay unless all of the following were met:
- The training must be comparable to that given at a vocational school (for example, the intern could pay to receive the training somewhere else).
- The training must benefit the student.
- The student would not replace a regular employee (the intern could not fill in for someone on short-term disability or out for the day).
- The employer would not immediately benefit from the student’s activities.
- There was no promise of a job following the training.
- Both the employer and the student understood that no wages would be given for the training period.
These rigid rules made it virtually impossible for an employer to meet all the criteria for an unpaid internship, especially the one prohibiting employers from gaining any immediate benefit from the intern’s work.
Current rule focuses on which party benefits most
The good news for employers is that the new rules loosen up the criteria and direct that each internship should be analyzed on a case-by-case basis where “no single factor is determinative” and pay exemption is decided on the “unique circumstances of each case.” Even better news is that the rules clarify that exemptions are generally permissible for unpaid internships in the public sector and with nonprofit charitable, religious, civic or humanitarian organizations.
The new criteria include the extent to which the:
- Intern and the employer clearly understand that there is no expectation of compensation.
- Internship provides training that would be like that which would be given in an educational environment.
- Work performed is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- Internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- Duration of the work is limited to the period in which the internship provides the intern with beneficial learning.
- Work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- Intern and the employer understand that the internship is conducted without entitlement to a paid job after the internship.
The key consideration is determining who benefits more from the internship—the student or the employer. If the employer is profiting from the work, then the company may have to treat the intern like an employee and pay at least minimum wage and overtime for time worked.
These are just the federal rules. States, some cities and local jurisdictions may have additional stricter conditions that employers must satisfy. In short, while an internship may comply with the new rules at the federal level, local rules may trump the exemption. From a risk management perspective, the amount an employer would pay a student for a few months would be worth far more than dealing with an audit, lawsuit, or negative publicity.
Checklist for hiring interns
What follow are some practical stepsand preventive measures employers can take to create successful internships and reduce misunderstandings that could lead to challenges later.
Before hiring an intern:
- Define the job carefully so that both parties are clear about job duties.
- Outline the company expectations and intern’s status in a written agreement, including the compensation structure or rationale for the unpaid status, company supervisor, hours of work, duration of the assignment, and the intern’s at-will status. Make sure the policy does not establish what could be viewed as a legally binding contract. Never imply the promise of employment for a specified period.
- Define supervisory roles and supervisor/intern evaluations. Reliable supervision is the key to preventing problems, including injuries, discriminatory actions and performance failings. Make sure all supervisors know who is overseeing the work of each intern.
- If possible, obtain formal documentation from the intern’s college or high school explaining the educational relevance of the internship and if it will earn the student credits.
- Ask whether the school provides liability insurance to cover damage caused by a student. Many schools carry the coverage. In addition, check your employment practices liability insurance to determine if it extends to interns.
- Once the intern is on board:
- Orient the intern to the company’s vision/mission/values, products and services, and provide a roadmap of how things get done within the company.
- Cover the important company policies that all employees, regardless of status, must follow.
- Confirm pay and benefits (if applicable) and explain pay dates.
- Make sure to comply with child labor laws that may affect the age groups of each intern.
- Limit teen interns’ hours. If the internship program reaches out to high schools, the FLSA’s or state’s child labor provisions may curb students’ hours and duties. For more details on child labor laws, visit the Department of Labor Youth Labor site. Check your state labor laws, which may require stricter child labor standards. Be sure to determine whether your state requires work permits or proof-of-age certificates for minors.
- Manage interns as closely as employees, if not more so. The company can be held responsible for the actions of any workers, including unpaid interns, while they are performing work on behalf of the business.
- If paying interns, ensure they are paid correctly and avoid the possibility of FLSA violations by having them accurately record time worked.
Hiring interns is a great way to help youth in the community learn what it takes to be successful in business while helping employers get special projects completed. Plan and work with your clients to structure programs so that the risks of internships are lessened and the rewards provide a great experience for everyone.
Laura Kerekes is ThinkHR’s Chief Knowledge Officer and leads the ThinkHR content knowledge and human resources service delivery teams. She holds both the HRCI Senior Professional in Human Resources (SPHR) and SHRM-SCP professional designations.
About ThinkHR: ThinkHR partners with over 650 leading insurance brokers and payroll bureaus with an HR knowledge platform that enables their clients to obtain quick answers to urgent risk and liability questions, protecting clients from loss and legal action; stay informed on the correct responses and decisions for HR management and compliance matters; create web training programs to educate and develop employees in the areas of safety, management and wellness; and save time and money versus expensive alternate legal and HR resou