HUMAN RESOURCES

Watch Out: That Unpaid Intern Could Cost You

The Department of Labor is cracking down on unpaid internships. Here's what you need to know.

AP/Geoff Crimmins

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Hiring an unpaid intern this summer? Your next hire after that could be a lawyer.

The Labor Department is cracking down on employers who break minimum wage laws, investigating and fining companies that are taking advantage of (mostly) young people for whom paid jobs are scarce.
When is it legal to have someone work for free? Very rarely, it seems.

'If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law,' Nancy J. Leppink, the Labor Department's acting director of the wage and hour division, told the New York Times. (And yet, an April 2006 survey from Vault.com found that 84 percent of college students complete an internship before graduation, but just 64 percent of those were being paid. And that was before the recession.)

There are six federal legal criteria you have to meet to hire an unpaid intern (and no, a cash crunch is not one of them). Among the criteria: The intern shouldn't replace regular paid workers, the work should be similar to training the intern receives at school (vocational or academic), and the employer should derive "no immediate advantage from the activities of the trainees, and" – get this – "on occasion the employer's operations may actually be impeded." 

If the criteria sound a little out of date (no matter how naïve or unskilled the intern is, it's hard to prove the employer derives "no immediate advantage"), it's because they are. They're based on a 1947 Supreme Court decision that evaluated whether the Fair Labor Standards Act applied to prospective train yard brakemen – not exactly the sort of work most interns (paid or otherwise) are doing these days.
 
How can you possibly have an intern that's of no advantage to you at all? A 2002 letter of advice from the Labor Department's Wage and Hour Division to an unnamed nonprofit suggests the interpretation isn't strict. The definition depends on whether "productive work performed by the mentees would be offset by the burden to the employers [local businesses] from the training and supervision provided." In other words: Is your intern benefitting more from the work than you are? If so, you may meet that particular criterion for legally unpaid labor. (But can you meet the other five? All six must be satisfied.) 
 
If you do go the unpaid labor route, keep in mind if you've applied the criteria incorrectly it can cost you a whole lot more than minimum wage and overtime – a misguided classification could trap you in an expensive legal maze involving discrimination laws, workers' compensation, state and federal taxes, benefits and unemployment insurance coverage, plus fines and legal bills.
 
In doubt? Either find another employee to do the photocopying – or pay interns at least minimum wage to avoid problems.

Last updated: Apr 6, 2010

COURTNEY RUBIN

Inc. contributing editor Courtney Rubin was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.




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