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HR Policies on Hiring Interns

DOL to Give Intern Pay Practices Closer Look Q&A

If you are hiring interns to work for you this summer, be aware that the DOL may be scrutinizing your pay practices. So, be sure you either pay them as employees or are able to prove that they meet the criteria for unpaid interns.

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Q: We have several college students working for us this summer. We call them interns and pay them a small stipend for their work. Is this okay, or do interns have to be paid the same as other employees?

A: It depends on whether the students are “employees” of your organization. Generally, under the federal Fair Labor Standards Act (FLSA), any person who is “permitted” to work for the advantage of the employer is considered an employee and must be paid. However, the fact that a person performs some type of work for an employer does not necessarily mean they must be treated as an employee.

(Download free 40-page Employers Quick Guide to HR Laws.)

The Department of Labor (DOL) has set out some guidance on this issue in its regulations and Wage and Hour opinion letters interpreting the FLSA. Although the DOL’s position on pay for internships is not new (it has been around for decades), enforcement will likely be stepped up over the next few months. The agency’s new solicitor general, M. Patricia Smith, who was sworn in last month, made investigating unpaid internships one of her top priorities as a New York Labor Commissioner. Now, the DOL is on the same path to enforce proper pay practices for interns.

According to the DOL, a person may be considered an intern or student “trainee” and not an employee entitled to minimum wage and overtime under the FLSA if all of the following six criteria are met:

1. The training the person receives is similar to that which would be given in a vocational school.
2. The training is for the benefit of the trainee or student.
3. The trainee or student does not displace regular employees, but works under their close supervision.
4. The employer that provides the training does not derive any immediate advantage from the activities of the trainee or student, and on occasion its operations may be impeded.
5. The trainee or student is not necessarily entitled to a job at the conclusion of the training period.
6. The employer and the trainee or student intern understand that the trainee or student is not entitled to wages for the time spent in training.

So, if the students are receiving training that benefits them, rather than the employer, and the training furthers their educational goals, the DOL typically will not consider them to be employees, therefore the interns do not need to be paid. Similarly, if the students receive academic credit for their work, they likely will not be considered employees. In addition, these students may be paid a stipend and still not be considered employees as long as the stipend does not exceed a reasonable estimate of the students’ expenses.

(Download a free Employee Classifications model policy, including HR best practices and legal background.)

On the other hand, if you’re hiring an intern to do work normally performed by other employees and receive little supervision or training, and the employer gains an immediate benefit from the students’ work, they probably should be treated as employees under the FLSA.

Even if the students should be considered employees, you may be able to obtain a special certificate to hire them at wages that are lower than the minimum wage. Under the FLSA, “full-time students” employed in retail and service establishments and in agriculture may be hired for a wage that is at least 85% of the current minimum wage (now $7.25 an hour). In addition, students over the age of 16 who are enrolled in an accredited school, college, or university and who are employed in an approved vocational training program may work in an occupation requiring a substantial learning period at a wage that is at least 75% of the minimum wage.

Because these intern pay requirements are complex, you should err on the side of treating these interns as employees and paying interns accordingly. If you want to treat them as nonemployees or pay interns using the subminimum wage exceptions, you should consult with legal counsel to ensure you comply with all of the requirements around hiring interns.

Regards,

Robin Thomas, J.D.
Personnel Policy Service, Inc.

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