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Be Careful with Unpaid Summer Interns

FLSA Series Part 4: Interns or Apprenticeships

This is the fourth of a series of articles explaining the complicated Fair Labor Standards Act, FLSA, or the Wage and Hour Law. January and February are often when organizations are deciding if they can bring on summer interns. Many organizations would like to do this, but not all can afford to create opportunities for work of limited duration. What may motivate you to develop an intern program is that you may be able to pay your intern less than minimum wage under certain circumstances.

It is the U.S. Department of Labor (DOL) that interprets the FLSA. In April of 2010, the DOL issued a new fact sheet (www.dol.gov/whd/regs/compliance/whdfs71.pdf) discussing the very limited circumstances under which an individual can work for a for profit employer as an “unpaid intern.”

The DOL maintains that for an internship to be unpaid, it must be educational and predominantly for the benefit of the intern, and not the employer. According to the new fact sheet, for a business to qualify and legally hire “unpaid interns” the following six (6) criteria must ALL be met:

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.

California often has employment law and interpretation of court cases that vary from the federal applications. California’s Division of Labor Standards Enforcement, DLSE, said it would apply the same rule to California employers. The DLSE has also issued an opinion letter speaking to how to apply the DOL rules to the California non-profit setting. See, DLSE Opinion Letter dated April 7, 2010 (www.dir.ca.gov/dlse/opinions/2010-04-07.pdf) The California DLSE maintains and agrees with the DOL that for an internship to be unpaid, it must be educational and predominantly for the benefit of the intern, and not the employer.

If the employer takes the risk of having interns or apprentices without paying at least minimum wage or meeting all six of the stated criteria, the employer can face tremendous liabilities. In addition to the minimum wage owed to any unpaid interns, the employer could face liability for overtime wages, missed meal and/or rest periods, unpaid employment-related taxes, attorney’s fees and various penalties under California’s Labor Code (including waiting-time penalties for failing to pay wages on a timely basis).

Quoting from the DLSE 17-page letter referenced above,”The above criteria (i.e. the list of six criteria in the fact sheet) must be applied in view of "all the circumstances" surrounding the intern's activities. The six criteria thus provide for a consistent assessment of the "totality of the circumstances" necessary to determine whether a trainee or intern is an employee or exempt from coverage.”

The DLSE letter also references a stipend, which I interpret as it is okay to pay interns, who are “non-employees” something. This is sometimes referred to as subminimum wage. Reading the DLSE letter further, “DOL has noted in opinion letters that "the payment of a stipend to the interns does not create an employment relationship under the FLSA as long as it does not exceed the reasonable approximation of the expenses incurred by the interns involved in the program.”

As always, check your particular circumstances with your legal counsel, but consider creating an opportunity for more talented people to get to know your organization, and you them, this summer.

Regards,

Beverly N. Dance, MBA, SPHR-CA, CCP, CEBS
dance@mba.berkeley.edu

More from PayScale

FLSA Series Part 1: Exempt or Non-Exempt Classifications

FLSA Series Part 2: Independent Contractor or Employee?

FLSA Series Part 3: Child Labor Laws

How to Determine New Employees' Annual Bonuses

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