Misuse of "Free" Interns can be very expensive – follow these rules
Free interns have been a fixture in small and medium-sized businesses for years. Recently, the number of free internships is skyrocketing, probably due to the current economic situation. Paying jobs are harder to find, especially for college students, while companies seek to cut costs. Even the largest companies are beginning to tap into this abundant pool of free labor.
However, just because you create an unpaid position and there is a college student willing to fill it, it does not mean that the law will sanction your arrangement. According to the Fair Labor Standards Act (FLSA), if an “employment relationship” exists between a “for-profit” employer and their worker, in most situations, the employer MUST pay that worker at least federal minimum wage and overtime pay. State and local minimum wage and overtime laws may also apply. The federal and New York minimum wage is $ 7.25 per hour, while the California minimum wage is $ 8.00 per hour worked. One way that companies can try to avoid paying these salaries is to classify their intern as an “apprentice” under the Act, but this is not as simple as it sounds. In addition to the six factors discussed below, California requires that interns receive college credit if they are working in an unpaid position.
The Employee or Apprentice Distinction: Six Factors
The definition of employment relationship and “employee” is very broad under the FLSA, so the guidelines that a worker must meet to be considered an “apprentice” are limited. The Wage and Hour Division (WHD) of the US Department of Labor has developed six criteria for evaluating whether a worker is an apprentice for the purposes of the FLSA, which you should follow carefully.
1) The training, although it includes the actual operation of the employer’s facilities, is similar to that which would be given in a vocational school or academic training.
Your company is likely to provide “on the job” training, rather than classroom instruction, to your interns. If your internship program provides the person with skills that can be used in multiple work settings, as opposed to the specific skills of your operation, then on-the-job training is not necessarily an issue. Be careful though, as your intern shouldn’t be doing routine work on a regular and recurring basis, and your business shouldn’t be dependent on the intern’s work. Also, keep in mind that brewing coffee, sweeping bathrooms, and “cleaning door handles every day to minimize the spread of swine flu” (as stated in a recent New York Times article) will not be considered activities of appropriate training.
2) The training is for the benefit of the students.
Your internship program should put apprenticeship education as your top priority. If your interns are involved in your operations or doing productive work (for example, filing, other clerical work, or assisting clients) they cannot be excluded from the FLSA’s minimum wage and overtime requirements. Your argument that they are receiving benefits in the form of a new skill or improved work habits will not convince WHD, because your company is benefiting from the interns’ work.
3) Apprentices do not displace regular employees, but work under their close observation.
If an employer uses interns as substitutes for regular workers or to reinforce its existing workforce, these interns must be paid in accordance with FLSA mandates. The safest course under the FLSA is to assign interns job shadowing opportunities, allowing them to learn under the close and constant supervision of regular employees, while doing little or no work.
4) The employer providing the training does not derive any immediate benefit from the trainees’ activities and, at times, the employer’s operations may be hampered.
This is very similar to the second factor, which requires the intern to get the main benefit from the program. However, it goes further and expressly states that your business efficiency cannot be used as an excuse to circumvent these guidelines. The argument to WHD that educating your intern is making your employees less productive, therefore the intern needs to “do some weight” will not be successful.
5) Apprentices are not necessarily entitled to a job at the end of the training period.
Unpaid internships generally should not be used as a probationary period for job seekers. If an intern is placed with the employer for a probationary period with the expectation that they will then be hired permanently “if things work out,” that person would generally be considered an employee under the FLSA.
6) Employer and apprentices understand that apprentices are not entitled to a salary for the time spent on training.
This requirement is relatively straightforward, but the law requires you to be clear with your students. You should have a well-written job description for all applicants and an offer letter to send to the interns you have selected, clearly stating that the position is unpaid.
Only if the above six factors are met will the worker be considered an apprentice, who is not legally required to be paid.
Compliance: Why You Should Care About the FLSA
I know that many of the CEOs reading this are scratching their heads, because they have been hiring interns for years and are violating at least half of the six factors above, without consequences. Now may be the time to change your ways. California and New York are actively investigating employers. California has already issued fines and is issuing “guidance letters informing employers if they are breaking the law.” WHD is “stepping up law enforcement across the country” and the consequences of non-compliance can be dire. Failure to comply with the FLSA can be prosecuted as a criminal action and subject to fines of $ 10,000. A second violation could send you to jail, yes, Federal Prison! Additionally, you could face civil penalties of up to $ 1,100 per violation. Also, if the Secretary of Labor has not sued you first, your former “free” employee may have up to three years to sue you for an intentional violation of the FLSA. If you win, they may be entitled to recover double the back payments owed, attorneys’ fees, and court costs.
Conclution
Free labor may seem like a godsend to your business, especially in the summer, the precious three months when students are available. However, you need to think twice before hiring that free intern and working him like a full-fledged employee. Plus, you need to think twice if you just want someone to deliver your coffee, pick up your dry cleaner, or clean the bathrooms. The misuse of free labor could be more expensive than you imagined.
For additional information, feel free to check out this article in the New York Times.
© Clem Turner, 2010. All rights reserved.