June 22, 2018

Wait – Do I Have to Pay This Kid?

by Alexis V. Preskar, Kohrman Jackson & Krantz LLP

Nothing signals the beginning of summer like a fresh crop of interns. Internships should provide students with insight into “real world” employment, but do companies have to pay interns or should the student just be grateful for the experience?

The Fair Labor Standards Act (FLSA) requires for-profit employers to pay employees minimum wage. But are interns considered employees? The answer depends on who is the primary beneficiary of the internship. If the intern is the primary beneficiary, then the position can be unpaid. This year, the Department of Labor (DOL) relaxed the primary beneficiary test, and now considers seven non-exclusive factors:

1. Do the intern and employer clearly understand that there is no expectation of compensation?
2. Does the internship provide training similar to educational courses?
3. Is the internship tied to the intern’s formal education program?
4. Does the internship accommodate the intern’s academic calendar?
5. Is the internship limited to the period in which the internship provides the intern with beneficial learning?
6. Does the intern’s work complement, rather than displace, the work of paid employees?
7. Do the intern and employer understand that there is no entitlement to a paid job later?

With all this in mind, here are steps to consider before hiring a new intern:

1. Apply the test. Compare the position, including title, duties and expectations, against the DOL test. Talk with a lawyer, but also consider reaching out to others in your industry to see if they typically pay their interns.
2. Don’t overpromise. When posting a position and conducting an interview, be clear about the nature of the work (temporary, part or full-time), compensation and benefits. If you decide the position should be unpaid, don’t allude to the potential for a full-time job or make any promise of later or “under the table” compensation.
3. Get it in writing. Work with an attorney to draft an unpaid intern or employment agreement and have the new hire sign the agreement before starting. The agreement should include a section identifying provisions of the employee handbook that are applicable to the intern.
4. Observe potential. Monitor the intern’s work over the summer and consider whether he or she is a good fit for your team long-term. It is not illegal to hire an intern as an employee later, but do not dangle the carrot of long-term employment while the intern is unpaid.
5. Consider word-of-mouth. Provide meaningful opportunities for the intern. The last thing you want is to have an unhappy intern who could later consider suing you for unpaid work, or – more likely – tell his or her friends and school that your company has a poor work environment. Bad word-of-mouth travels quickly, and employers do not want to alienate a potential recruitment tool, such as college placement programs, or hurt their reputation in the community.