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by Jen Leigh on August 7, 2018

Hiring Interns Doesn't Have to be a Legal Minefield

In the past few years, a rash of class-action lawsuits has been opened by unpaid interns. The targets of these lawsuits have been varied - companies from Marc Jacobs to Gucci to Fox to the Olsen twins have come under focus - but their goal is always the same: punishing companies that illegally refuse to pay interns. In the midst of changing laws, let's review what you need to know to stay HR compliant.

The History of Interns and the Department of Labor

Internships are an age-old way for companies to get inexpensive extra help while also providing college students with the type of practical experience that looks great on a post-matriculation resume. In 2016, a report from the Guardian showed that about half of the 1.5 million U.S. internships on offer each year were unpaid. From 2010 to early 2018, however, unpaid internships were governed by a strict six-factor set of legal requirements from the Department of Labor (DOL) designed to prevent unpaid interns from pushing paid employees out of the workforce. In general, the main exception to these requirements came in cases when it could be demonstrated that the intern's work was being carried out in an "educational environment" and the intern was receiving college credit for their work.

In January 2018, meanwhile, the DOL rolled out new guidelines that replaced much of the previous thinking with one simple goal: ensuring that the intern is the "primary beneficiary" of the program rather than the company. The new standard enumerates seven elements that each internship will be reviewed against, with no one being conclusive. Most experts conclude that this change makes it easier for companies who want to bring unpaid interns onboard to do so legally. Our HR On-Demand Services can also answer any of these questions, 24 hours a day, 7 days a week. 

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Nonprofits vs For-profits: It Matters for HR Compliance

If your company is a nonprofit, there may be a way to get around all of these potential complications. When the DOL released its original six factors in 2010, it also acknowledged that "[u]npaid internships in … non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible." Under this provision, interns can be classified as a volunteer, in which case they are unpaid - of course, be sure to consult your state's law for any additional requirements that may apply beyond federal regulations.

Further legal considerations for nonprofits hiring unpaid interns include the following:

  • Interns who are considered volunteers may not be paid a stipend. Payment of a stipend will render them employees, and employees must be paid at least minimum wage.
  • Research how your state and your nonprofit handle volunteers' injuries. In some states, "volunteers" aren't covered by workers' compensation insurance, so if your intern is classified in this manner, they may not be covered if injured while working for your nonprofit. If your nonprofit has a "volunteer accident insurance" policy, your intern could be compensated by this coverage. Be aware of your status and apprise your interns of any risk to them before they accept a position with your nonprofit.

For-Profit Companies: Get to Know the Primary Beneficiary Test

Meanwhile, if you're at a for-profit company, the DOL lists seven factors that make up the primary beneficiary test. Keep in mind that this is a flexible test, that the DOL has stated its intent to review each internship on a case-by-case basis and that no single factor among the seven is determinative.

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee - and vice versa.
  2. 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.
  3. The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. 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.
  7. 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.

In addition to the DOL requirements, it's important to know your state's laws; in some municipalities, different wage and hour laws may also exist. When in doubt, consult an attorney that specializes in HR compliance support

Do You Really Need Interns?

After all this deliberation, do you really need interns? Is there any other way to handle your staffing needs in a more straightforward manner that's not quite so fraught with potential legal pitfalls?

The short answer is yes. In a good internship program, you're onboarding, training, supervising and mentoring your interns - and then they walk out the door. Therefore, even if you can justify an unpaid intern, there's an opportunity cost in terms of staff time. Consider whether you would be better served by hiring a permanent employee to fill the role that you're staffing so that this investment doesn't zero out in the ROI department once the intern returns to school in the fall.

Cooperative education, or co-ops, is another path - though typically not unpaid - advocated by some experts. This scenario enables the business and educational communities to work together to add value to an undergraduate's degrees through real-world learning while benefiting companies in the process. Though it may require more work on the front end to set up, by entering into the process under the aegis of a college or university, a co-op arrangement enables you to mitigate most, if not all, risk of legal issues - thanks to the educational framework of the collaboration - while the institution itself also assumes some of the roles in guiding the co-op employee. It's an interesting format to consider.

Next steps when you do hire an intern

So you've made the decision to go ahead and hire an intern: What's next?

  • First and foremost, have clear expectations for your intern - if possible, assign them a specific project or task them with specific deliverables - and write a clear job description for them surrounding the work that they're to do.
  • Find out what motivates your intern and what they are looking to get out of this position. Using these interests and your job description as a guide, work with your intern to develop goals for their term of employment. Collaborate on weaving their interests into the role you've assigned.
  • Treat the position like a job. Stick to the job description that you've assigned and encourage everyone else to do so as well. No sending the intern out to Starbucks.
  • Be flexible. Keep in mind that your intern may be holding down another job as well to make ends meet. Also, if you've required a certain number of hours, don't expect them to work overtime - be considerate of their schedule, just as you would other employees.
  • Have an exit strategy. As much as you might like to hire your intern at the end of the summer, that might not be in the cards. At each step along the way, ensure that you're planning appropriately for your intern's departure - this includes staying up-to-date on their work, making sure you know where all paper and computer files are, et cetera.

Internships are a time-honored way for young adults to gain business experience - and they don't have to be a potential legal headache in the making for employers. With a thorough understanding of the landscape, you can navigate the practice of hiring interns effectively and successfully put them to work for you and your business. As with most things, it pays to do your due diligence on all levels - federal, state and local - and know the rules before you plunge in.

Want to know more about how Inflection HR helps you remain in HR compliance when it comes to hiring interns? Contact us today to learn more!
Developing and Retaining a Multigenerational workforce

Jen Leigh

Jen Leigh is a Senior Product Specialist with Inflection HR's Cloud Based HR and Workforce Management Solutions. Connect with Jenni and the rest of the Inflection HR Team on Twitter, Facebook, or LinkedIn.