Your startup or SMB probably operates on a tight budget, so unpaid interns might seem like the ideal solution to your labor problems. Unfortunately, you could end up in hot water with the Department of Labor if your internship program doesn’t meet certain legal standards. Every employee in the United States is entitled to a minimum wage and overtime compensation. In addition, employees might be entitled to workers’ compensation, unemployment benefits and protection under state labor laws and discrimination laws. According to the Supreme Court’s ruling in Walling v. Portland Terminal Company, your company can’t avoid these obligations by simply calling someone an “unpaid intern.”
Before establishing an internship program, you should talk to your accounting services provider. Unpaid internships have to pass six legal tests to exempt your company from the employer/employee relationship:
1. The intern’s training simulates what he or she would receive in an educational environment. Asking an unpaid intern to file papers for a summer might decrease your office workload, but it won’t provide the intern with the caliber of job skills that would be delivered in an educational environment. Work with a local college to make sure that your intern gets college credit while working for you.
2. The internship experience benefits the intern. If your intern doesn’t gain more than your company does from the experience, then your internship program doesn’t pass the exemption test.
3. The intern doesn’t displace a regular employee. Your intern shouldn’t fulfill a role better filled by a paid employee. Also, existing staff should supervise all interns closely. If your interns act like employees, then they should be paid at least minimum wage. Your accounting services provider can help you make the distinction.
4. The business doesn’t receive advantages from the intern’s presence. The effort to train an intern should actually impede your business, not make it easier, according to the Fair Labor Standards Act (FLSA). Again, the intern should be receiving the benefit, not your company.
5. The intern isn’t entitled to a job once the internship is complete. Before the internship start-date, have the intern sign an agreement. The agreement should explain that no intern is entitled to a job offer.
6. The intern isn’t entitled to payment. The intern should sign an agreement acknowledging that he or she isn’t going to be paid.
In today’s uncertain employment environment, unpaid interns might eagerly trade free labor for work experience. However, even if interns seem willing to work for nothing, accepting free labor puts your company in litigious territory. Keep yourself and your business safe. Work with tax and accounting professionals to ensure strict adherence to labor regulations and structure unpaid internships around the Walling v. Portland Terminal Company standards.
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