So You Thought You Didn't Have to Pay the Summer Intern?

Think Again.

With the summer job season upon us, the U.S. Department of Labor (DOL) apparently decided a refresher course was in order for employers hiring interns and trainees. Thus, it recently published a fact sheet entitled, "Internship Programs Under the Fair Labor Standards Act." The DOL's message for employers is clear: Although interns working for governmental agencies and non-profit charitable organizations need not be paid if they are volunteering without the expectation of compensation, internships with private sector employers must be paid unless they meet a very rigid test.

As a general rule, interns with "for profit" employers are considered employees who must be paid at least the minimum wage rate and overtime premium for hours worked in excess of 40 in a workweek. The federal wage and hour law recognizes an exception for interns and trainees who participate in internships and training programs for their own educational benefit. Such individuals may be unpaid if six criteria are satisfied:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

2. The internship experience is for the benefit of the intern;

3. The intern does not displace regular employees, but works under close supervision of existing staff;

4. 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;

5. The intern is not necessarily entitled to a job at the conclusion of the internship; and

6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The DOL counsels that an internship program is more likely to be viewed as an extension of the individual's educational experience—and, thus, permissible to be unpaid—if it is structured around a classroom or academic experience, as distinguished from the employer's actual operations. The same is true of internships which develop skills that can be used in multiple employment settings, as opposed to skills particular to the employer's operation. The DOL also cautions that an unpaid internship should be of a fixed duration which has been stated to the intern at the outset, and that the internship should not be used as a substitute for regular, paid employees or as a trial period for individuals seeking employment at the end of the internship.

The purpose of this article is not to discourage employers from offering internships and training programs, either during the summer months for students, or any other time of the year. Such programs can accomplish valuable objectives for both the individual participants and the companies providing the training experiences. Many employers have routinely and effectively utilized internships as a means of identifying candidates for future employment. There is nothing illegal or improper about using internships for this purpose as long as the interns are paid at least the minimum wage rate and, when they work more than 40 hours in a week, time and a half. However, when private sector employers consider offering unpaid internships, they must be aware that strict compliance with the conditions outlined by the DOL will be required. Otherwise, they risk liability for the wages they failed to pay, plus liquidated damages and attorneys fees—a hefty penalty which, for most employers, would more than nullify any benefits derived from the internships. In summary, the safest approach for private sector companies is to offer only paid internships. For those who dare to offer unpaid internships, very careful attention must be paid to the six criteria enumerated in this article.

Wayne "Skip" Adams is a partner in Ice Miller's Labor and Employment Group. Adams' practice has been devoted to the representation of employers primarily in labor and equal employment matters. He has substantial experience in defending employers in employment discrimination cases, wrongful discharge lawsuits and labor arbitrations.

June 23, 2010

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.