Legal pitfalls of unpaid internships

As many employers (and quite a few students) found out this summer, unpaid internships can create a number of legal problems. Even though hiring unpaid interns is a common practice – and it’s even more popular in these tight economic times – the truth is that there are relatively few situations in which an unpaid intern can legally work in a for-profit business. Employers need to be on guard because the Department of Labor has announced that it is stepping up enforcement of violations.

According to the Department, the key to a valid internship program is that the internship must be primarily for the intern’s benefit – rather than for the employer’s benefit.

There are six factors to be considered in deciding if an unpaid internship is okay for a private-sector, for-profit business. All of the factors must be met to make the internship legal – regardless of whether the intern voluntarily agrees to work without pay.

The factors are:

  • The training is similar to what would be provided in a vocational school or educational institution.
  • The training is for the benefit of the intern.
  • The intern doesn’t displace any regular employees, but works under their close observation.
  • The employer derives no immediate advantage from the intern (and on occasion its operations may actually be impeded).
  • The intern is not necessarily entitled to a job at the conclusion of the internship.
  • Both the employer and the intern understand that the internship is unpaid.

An internship is much more likely to be considered valid if the intern is doing things that increase his or her skill set, as opposed to spending all day running a copy machine or doing other clerical tasks.

An unpaid internship should never be used as an “introductory” or “probationary” period prior to someone’s being hired. This can get an employer into legal hot water.

If you’re an employer and you believe you can properly offer an unpaid internship, it’s a good idea to create a written document that shows how the internship meets the criteria and states what the company expects from the intern, that it is an educational experience, that the internship is for a specified period, and that it’s unpaid.

If you’re an employer and you’re not certain that an internship plan is valid, another option is to pay minimum wage instead. However, be aware that you’ll also have to pay overtime if the intern works more than 40 hours a week.