Navigating the Legal Landscape of Unpaid Internships
Internships are a vital bridge connecting academic pursuits with professional careers, offering students invaluable real-world experience and employers a pipeline to identify and cultivate future talent. The increasing prevalence of internships underscores their significance, with studies revealing that a substantial majority of college graduates have completed at least one internship during their academic journey. These experiences significantly enhance employability, making graduates with internship experience considerably more likely to secure jobs upon graduation. However, the legality of unpaid internships remains a contentious issue, demanding careful consideration from both employers and interns.
The Rising Importance of Internships
The popularity and necessity of internships are booming. A significant percentage of college graduates have internship experience, demonstrating how important internships have become with regard to getting a job. A study showed students with internship experience are more likely to get jobs out of college than those without.
Whether you already offer internships or are just getting started setting up a program, there are a few things you should keep in mind.
The Department of Labor's Stance on Unpaid Internships
The Department of Labor (DOL) has established regulations to determine whether an internship qualifies as a paid or unpaid position. If an internship qualifies as a paid position, interns must legally be paid the federal minimum wage (at the very least) for the services they provide in the “for-profit” or private sector. They must also be paid overtime.
The DOL has developed criteria that an employer must apply to determine whether an internship legally qualifies as work without compensation. Assuming the internship qualifies under all factors as unpaid, the Fair Labor Standards Act (FLSA) does not recognize an employment relationship. Therefore, the intern no longer qualifies for minimum wage or overtime under the law.
Read also: Understanding Unpaid Internship Laws
The Six Criteria for Legal Unpaid Internships
Debates surrounding the legality of unpaid internships seem never-ending. They also seem to be without rhyme or reason. The Department of Labor (DOL) has laid out very specific laws to determine the legality of unpaid internships. Those laws are contained in Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act.
The fact sheet identifies six criteria an unpaid internship in the for-profit private sector must meet in order to be legal. If the internship doesn’t meet all six 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. This applies only to for-profit private sector internships. The FLSA makes a special exception for unpaid internships in the public sector and at non-profits; interns are considered volunteers and therefore aren’t legally required to be paid.
The six criteria for unpaid internships, as written by the DOL, are as follows:
- Training Focus: The internship, even if it includes actions and responsibilities full-time employees would perform, is considered training.
- Intern Benefit: The internship experience is for the benefit of the intern, not the employer.
- No Displacement: The intern does not replace regular employees but works under close supervision of existing staff.
- No Immediate Advantage: The employer that provides the training should see no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded (a.k.a. the business should not rely on interns to perform vital operational functions that impact revenue and/or performance).
- No Job Guarantee: The intern understands he/she is not entitled to a job at the conclusion of the internship.
- No Wage Expectation: The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship (a.k.a. get it in writing that it's an unpaid internship).
In general, the more an internship mirrors an academic experience, the more likely it will fulfill the six criteria. That’s not as easy as it sounds, however. Basically, the law holds that if an intern is engaged in any way with the operations of the business - clerical work, assisting customers, answering phones, etc. - then they are entitled to the FLSA’s minimum wage and overtime requirements because the employer benefits from the interns’ work.
Similarly, if you plan to use interns as substitutes for regular workers or to augment your existing staff during specific time periods - tax season, for example - then the interns should be paid. Another way to look at it: If you would have hired additional employees or required existing staff to work additional hours had the interns not been there, then the interns are viewed as employees under the FLSA.
Read also: Accounting Internship Benefits: Paid vs. Unpaid
As for the legality of internships being “paid” for in school credit, no hard-and-fast rules exist. Recently, however, major schools such as Columbia University and New York University decided to no longer offer undergraduate students registration credits in exchange for internship experiences. Other schools that don’t grant credit for internships include Dartmouth, Yale, and Harvard.
Given these specific-yet-wide-reaching requirements, most interns at for-profit businesses should legally be paid at least the minimum wage and be treated as temporary employees with respect to labor law.
Navigating the Legalities: A Guide for Employers
As we’ve already established, interns in most cases should be treated as temporary employees, unless you meet the six criteria to legally have unpaid interns (or work for a company in the nonprofit or public sector). And the criteria should not be taken lightly, either: In 2011, two 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.
The lawsuit sparked an array of copycat suits filed by interns from such companies as NBCUniversal, Rolling Stone magazine, and CBS Corp. These suits and others like it have led some companies (Fox Searchlight, The Nation magazine) to restructure their internship programs to include minimum-wage pay, and made others, like Conde Nast, to cut their internship programs altogether.
But the issue of paid vs. unpaid internships is still in limbo. While the Fox Searchlight interns won their court case, eight former Hearst Corporation interns who filed in 2011 with similar claims - in the same district court (Manhattan) - did not. A case filed in the Second Circuit Court of Appeals in Manhattan in January 2015 will seek to address that inequality and answer the question: Is an intern an employee?
Read also: Are Unpaid Internships Legal?
Until then, assume that all interns should be treated as regular employees. That means you treat them just like any other employee you would hire. Notify them when running a background check. Avoid asking illegal interview questions (some of which are easy to ask by accident). The employer and the intern understand that the intern is not entitled to wages for the time spent at the internship. Individuals who did not meet all six criteria have sued under the federal wage and hour laws for back pay and overtime.
Courts in Maryland and Virginia have not followed the DOL test specifically, and instead have focused on whether the internship is primarily for the benefit of the intern or the employer. Other courts have generally followed the DOL’s test. The courts in DC have not expressed an opinion about what test to follow. However, no matter what test is used, there are common elements that you should follow when developing an internship program. First, the internship program should be educational and part of an academic experience, such as when the intern receives academic recognition from his educational institution for completing the internship. To the extent possible, an employer should work with the intern and the intern’s educational institution to provide academic credit for the internship. Even with unpaid interns, you should create offer letters delineating the requirements of the internship.
The "Primary Beneficiary Test"
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. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.
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.
The FLSA exempts certain people who volunteer to perform services for a state or local government agency or who volunteer for humanitarian purposes for non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation, for religious, charitable, civic, or humanitarian purposes to non-profit organizations.
The Ethical and Economic Implications of Unpaid Internships
While many internships are paid, unpaid internships are problematic for many reasons. NACE research has found that students who take part in paid internships receive more job offers and garner higher starting salaries than those who participate in unpaid internships. Of four-year college students, paid interns averaged more job offers than unpaid interns, and students with no internship experience. Paid interns also offered higher starting pay.
Particularly troubling, NACE research has also found that all college students are not equitably represented in internships. White, male, and continuing generation students are disproportionally overrepresented in paid internships.
Unpaid internships are a barrier to achieving equity and opportunity for all college students:
- Participating in an unpaid internship is much harder, and often impossible, for students who cannot forgo a paycheck for a significant period. As such, these students can access work experience, skill development, and networks that less privileged students cannot.
- The bifurcation of paid and unpaid internship opportunities causes a disparate impact on student outcomes and furthers systemic inequities. continuing generation students. These students then go on to receive more job offers and higher starting salaries, which perpetuates and exacerbates the disparate impact over time.
- Unpaid internships deny basic labor rights provided to paid interns. and discrimination (Rothschild & Rothschild, 2020).
- Not compensating interns communicates to them and their organizational colleagues that their contributions are somehow less valuable than the work of paid interns. to which unpaid internships directly contribute.
To provide all participating internship students with equitable access to opportunities and career success, we advocate that all internships should be paid.
A Call to Policymakers for Action
We advocate for legislation to eliminate unpaid internships and provide support for employers in converting unpaid internships to paid internships. Congress should pass legislation requiring internships to be paid. Modern legislation is needed to resolve this inconsistency.
The Primary Beneficiary Test requires employers to exercise broad discretion and judgment in determining whether interns should be paid. judgment and discretion are used, mistakes can and will be made, or more troubling, employers will intentionally classify an individual as an unpaid intern simply to save money. Students, institutions of higher education, employers, and the economy will all benefit from interns being paid, and legislation is needed to make it so.
In addition to legislation, policy makers should provide increased financial and other support to smaller, for-profit, and nonprofit organizations for them to provide paid internships. reside largely with smaller for-profit companies and nonprofit organizations. This support could take the form, for example, of increased funding support for existing workforce and education legislation programs. community to use other funding available to financially support low-paid and unpaid internships. local chamber of commerce funding are available options for the funding needed to eliminate unpaid internships. NACE not only recommends increased usage of these funds, but also encourages the government agencies that oversee these funding streams to provide detailed guidance to help facilitate this usage along with increased investments to support paid internships. If an employer cannot afford to pay an intern, they could access these various funding streams. laws.
Until legislation exists requiring internships be paid, Congress should immediately pass the Federal Intern Protection Act to extend legal protections to unpaid interns in the federal government. legislation to prohibit discrimination against unpaid interns in the private sector as well. could serve as models for other states and the federal government.
Intern Rights and Responsibilities
Make sure you know your rights as an intern so you don’t get taken advantage of. While there are many amazing employers with wonderful internship opportunities, some are either unaware of the laws or willing to take advantage of students seeking work experience.
As students begin the internship search process, a few things must be considered. First, an internship should not serve the purpose of providing you with a paycheck. While many internships are unpaid, they still provide plenty of value. Future employers love to see internship experiences on resumes. Even if the internship experience is outside the career or field the student pursues after graduation, it still provides essential work experience that may not be gained through a part-time job. Students should ask if internships can be counted as academic credit. The internship experience shouldn’t exist outside your higher education; it should be included. Internships can also be found through networking with your friends and family, which means asking them about opportunities they know of. Finally, you can find internships through your college’s Career Center.
As you take on the internship search, you now know what to look for in an unpaid or paid internship experience. With these standards in hand, you can ask the right questions to determine where your internship falls on the scale and whether or not your potential employer is following the law.
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