Navigating the Legal Landscape: A Comprehensive Guide to Hiring Interns

The growing popularity and necessity of internships highlight their importance in securing employment. Studies show that students with internship experience are significantly more likely to land jobs after graduation. Whether you're establishing a new internship program or refining an existing one, understanding the legal requirements for hiring interns is crucial. This article provides a comprehensive overview of these requirements, covering aspects from paid versus unpaid internships to compliance with labor laws.

The Rise of Internships: Why They Matter

Internships have become increasingly vital for students seeking to gain a competitive edge in the job market. A substantial percentage of college graduates have completed at least one internship during their studies, and those with internship experience are more likely to secure employment after graduation. This underscores the value that employers place on practical experience, making internships a key stepping stone for aspiring professionals.

Unpaid vs. Paid Internships: Decoding the Legalities

The legality of unpaid internships is a complex and often debated topic. The Department of Labor (DOL) has established specific criteria to determine whether an internship can legally be unpaid in the for-profit private sector. These laws are detailed in Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.

The Six Criteria for Unpaid Internships

To qualify as an unpaid internship, the following six criteria must be met:

Training Focus: The internship, even if it involves tasks performed by full-time employees, must be akin to training provided in an educational setting. The internship experience is for the benefit of the intern, not the employer.
Intern Benefit: The internship experience is primarily for the benefit of the intern, focusing on enhancing their skills and knowledge.
No Displacement of Employees: The intern should not replace regular employees but work under the close supervision of existing staff.
No Immediate Employer Advantage: The employer should not derive immediate advantage from the intern's activities; in some cases, the intern's involvement may even impede operations. In other words, the business should not rely on interns to perform vital operational functions that impact revenue and/or performance.
No Entitlement to a Job: The intern must understand that they are not entitled to a job at the conclusion of the internship.
No Entitlement to Wages: Both the employer and the intern must understand, preferably in writing, that the intern is not entitled to wages for the time spent in the internship. The employer and intern both clearly understand that compensation is not expected.

If an internship doesn't meet all six of these standards, the intern must be paid at least the minimum wage and overtime compensation for hours worked over 40 in a workweek, just like a regular employee.

It is important to note that the Fair Labor Standards Act (FLSA) makes a special exception for unpaid internships in the public sector and at non-profits, where interns are often considered volunteers and are not legally required to be paid.

The Academic Experience Connection

The closer an internship aligns with an academic experience, the more likely it is to meet the six criteria for unpaid status. However, this can be challenging. If an intern is involved in any way with the operations of the business, such as clerical work, assisting customers, or answering phones, they are generally entitled to the FLSA’s minimum wage and overtime requirements because the employer benefits from their work.

Similarly, if interns are used as substitutes for regular workers or to augment existing staff during busy periods, they should be paid. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not been there, the interns are viewed as employees under the FLSA.

School Credit for Internships

There are no definitive rules regarding the legality of internships being "paid" for in school credit. Some major schools have decided to no longer offer undergraduate students registration credits in exchange for internship experiences.

Given these requirements, most interns at for-profit businesses should legally be paid at least the minimum wage and treated as temporary employees with respect to labor law.

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Hiring an Intern: Key Considerations

In most cases, interns should be treated as temporary employees unless the six criteria for unpaid internships are met or the company is in the nonprofit or public sector.

Legal Battles and Program Restructuring

In 2011, interns who worked on the movie Black Swan sued Fox Searchlight Pictures for having them do work that should have been done by paid employees. In June 2013, the court sided with them, ruling that they deserved minimum wages in exchange for their work. This lawsuit sparked similar suits filed by interns from other companies, leading some companies to restructure their internship programs to include minimum-wage pay, while others cut their internship programs altogether.

Treating Interns as Regular Employees

Until further legal clarity is provided, it's best to assume that all interns should be treated as regular employees. This means notifying them when running a background check and avoiding illegal interview questions.

The FLSA requires for-profit employers to pay employees for their work. Courts have used the "primary beneficiary test" to determine whether an intern or student is, in fact, an employee under the FLSA. This test examines the "economic reality" of the intern-employer relationship to determine which party is the "primary beneficiary" of the relationship.

The Primary Beneficiary Test: A Closer Look

The Department of Labor Wage and Hour Division uses the primary beneficiary test, encompassing seven factors, to ascertain whether an intern or student qualifies as an employee under the FLSA:

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Compensation Expectation: The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed or implied, suggests that the intern is an employee-and vice versa.
Educational Training: The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
Formal Education Program Tie-In: The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
Academic Commitment Accommodation: The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
Limited Duration: The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
Complementary Work: The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
No Entitlement to Paid Job: The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Courts have described the "primary beneficiary test" as a flexible test, and no single factor is determinative. If analysis of these circumstances reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA.

Navigating Wage and Hour Laws

Wage and hour laws apply to "employees," so determining whether an intern is an employee for FLSA purposes is crucial. The DOL has stated that unpaid internships in the public sector at non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

Overtime Pay

The FLSA mandates that employees who work more than forty hours in a week must be paid for the excess hours at one and one-half times the regular rate of pay. This includes interns who are also considered employees under the FLSA.

Maximum Hours

The FLSA does not establish a maximum number of hours that an employee (including employee-interns) can work per week for interns over the age of 18. If a paid intern works over 40 hours per week, they must be paid time and a half for those hours worked in excess of 40 unless they qualify for an overtime exemption.

Vacation Time

The FLSA does not require employers to provide employees, including employee-interns, any amount of vacation.

Independent Contractors vs. Employees

An independent contractor is not an employee and is not subject to the provisions of the FLSA. Courts consider several factors to determine whether a worker is an employee or an independent contractor for purposes of the FLSA, focusing on whether the individuals are economically dependent on the business of the employer.

If the intern is deemed to be an employee, then the employee may be eligible for certain benefits under federal law, including up to 12 weeks of unpaid leave per year under the Family Medical Leave Act.

Paid Internships: Key Considerations

Paid interns are considered employees, and laws like the Fair Labor Standards Act (FLSA) and state wage and hour laws apply to them. This includes protections such as meal and other breaks, and overtime wages, if applicable.

Affordable Care Act (ACA) Implications

Under the Affordable Care Act (ACA), applicable large employers (ALEs) are generally required to offer employees who work at least 30 hours/week the opportunity to enroll in employer-sponsored health group insurance coverage after 90 days of full-time employment.

There are two exceptions under the ACA to keep in mind for paid interns:

Seasonal Employees: If a company hires interns during the summer season only, such employees may fall under the seasonal employee exception, which generally permits employers to exclude certain categories of employees who work at the same time each year and for less than six months.
Part-Time Employees: If paid interns work less than 30 hours per week, they may not be entitled to group health insurance coverage as part-time employees. A paid intern who will work for a company for no more than 90 days may also not be eligible for group health insurance coverage, depending on how the applicable plan documents define the initial waiting period.

Paid interns are typically classified as non-exempt hourly employees because they’re likely not managing people, and their title implies that they’re not exercising “independent judgment with respect to matters of significance” in the workplace.

Stipend vs. Wages

Most interns must be paid at least the applicable minimum wage for all hours worked. A company may participate in an unpaid educational internship program under very limited circumstances. Employers sometimes consider stipends for interns, but this arrangement only works in limited circumstances.

If a company is participating in an unpaid educational internship program, they may be able to provide an expense reimbursement stipend under limited circumstances, including:

If the unpaid educational internship program allows stipends.
The program meets all the requirements under applicable federal and state law for the unpaid educational internships.
The stipend reimburses expenses (like food or travel) rather than pays for work performed.

A stipend generally cannot be paid in place of regular wages. Paid interns are W-2 employees and are entitled to be paid at least the applicable minimum wage for all hours worked. While an employer can reimburse a paid intern for food or travel expenses with receipts, it's generally not a good idea to provide such reimbursement by way of an upfront flat stipend.

How Much to Pay Interns

Paid interns must be paid at least the applicable minimum wage for all hours worked and overtime wages, if they work overtime. However, employers can always pay them more. The decision to pay an intern more than the applicable minimum wage will depend on business reasons, including the market, what the employer can afford, and the assessment of the value of the work the intern will be performing.

Employers might consider paying interns at least equivalent to the highest minimum wage in the country to ensure compliance and to help interns cover living expenses in major cities.

Are Paid Interns Eligible for Benefits?

An intern who continues to work full-time after 90 days may become eligible for benefits. However, a continued internship could likely involve less than 30 hours of work per week, especially for college students who return to a regular schedule of classes.

Hiring Minors and Seasonal Workers

During vacation or holiday seasons, employers may consider hiring interns, minors, or seasonal workers. In such cases, it's essential to keep in mind laws governing minimum wage, overtime, nondiscrimination, and child labor.

Minimum Wage and Opportunity Wage

Employers must generally pay all non-exempt employees - including minors, paid interns, and seasonal workers - at least the minimum wage for all hours worked and overtime when applicable. However, the FLSA allows employers to pay employees under the age of 20 an "opportunity wage" of $4.25 per hour during the first consecutive 90 calendar days of employment.

Child Labor Laws

The FLSA prohibits anyone under the age of 18 from working in hazardous occupations, which are listed in detail in the Code of Federal Regulations. Additionally, individuals under the age of 16 are generally excluded from manufacturing, mining, machine-tending, transportation, construction, and public utility work. Minors under the age of 17 are prohibited from operating a motor vehicle, but workers 17 or older may do so when certain criteria are met.

Many states require minors to have a work permit or working papers before they can begin employment. In states with this requirement, work permits are typically obtained through the minor's school district or the state's equivalent to the Department of Labor.

Restrictions on Working Hours

The FLSA and many state laws restrict the hours a minor can work. Under the FLSA, when school is in session, 14- and 15-year-olds can work three hours on a school day or 18 hours in a school week. When school is not in session, they may work up to 40 hours a week and up to 8 hours a day under federal law.

New Hire Paperwork

Employers must complete certain new hire paperwork for all new hires, including minors, paid interns, and seasonal workers. A Form I-9 must be completed for each new hire to verify the individual's identity and that they are authorized to work in the United States. All new hires must complete a Form W-4 to determine the amount of federal income tax to withhold from their wages.

Other Compliance Considerations

Under the Affordable Care Act (ACA), employers must provide a Notice of Coverage Options to all new hires within 14 days of their start date. Many states and local jurisdictions also require that employers provide specific notices to employees at the time of hire, covering topics such as state disability insurance, state-run retirement programs, leave entitlements, harassment and discrimination, workers' compensation, and unemployment.

Federal law requires that employers submit certain information to their state regarding each new hire within 20 days of the employee's start date, but several states have shorter timeframes. Many states have specific meal and rest break laws for employees, and even if a state doesn't require breaks for other employees, it may be required for minors.

Nondiscrimination Laws

Nondiscrimination laws prohibit employers from discriminating against or harassing applicants and employees. These laws also protect paid interns, minors, and seasonal workers, and some jurisdictions have extended these protections to unpaid interns as well.

Depending on the jurisdiction, minors, paid interns, and seasonal workers may be entitled to paid sick leave and/or other types of paid or unpaid leave.

Best Practices for Internship Programs

Provide Adequate Training: Like any other employee or volunteer, interns need to receive enough training so they can successfully meet expectations.
Ensure the Internship Benefits the Intern: Consistent with the requirement that an unpaid internship is primarily for the benefit of the intern, and not the company.
Clearly Define Expectations: The company and the intern should have a clear understanding of the internship's goals, responsibilities, and expectations.

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