Header graphic for print
Tilting the Scales Business Issues with a Legal Slant

Paying Elves and Interns!

Posted in *Way Out - Advice, Employment & Labor

Twas the week before Christmas when at the North Pole,

Santa checked his throughput and moaned, “We’re in a hole!”

“We’ll never get done, we’re far from ready, let’s get some interns – some students will do.

Surely they’ll want to learn what elves can do!”

“On Juniors and Seniors, Thetas, Lambda Chi’s, you’ll learn a lot – just kiss your evenings and weekends Good-Bye!”

So, Santa called Magical Elves, Inc. to find college students who would accept his unpaid internships. Is that a problem?

Actually, internships may be a good option for Santa’s non-profit operation – so long as he does not pay a stipend or offer any benefits and clarifies whether interns are unpaid volunteers or paid employees. Paying a “stipend” could cause unintended negative consequences that might cause the Department of Labor to classify Santa’s interns as employees. If employees, Santa would owe back wages (at least minimum wage) and back taxes. On the other hand, if Santa follows the wage regulations closely his interns may be treated as “trainees.” If “trainees,” nonprofit may be relieved from paying minimum wages, yet need carefully to document how the internship primarily benefits the intern — not the nonprofit. And, also, workplace injuries could be a problem.

Internships in the “for-profit” private sector will most often be viewed as employment and violating the law if not paying minimum wages because often the manner and means by which the intern’s work is accomplished is controlled by the hiring party If interns qualify as employees rather than trainees they typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek. The Fair Labor Standards Act (FLSA) defines “employ” very broadly to include “suffer or permit to work” and  must be compensated under the law for the services they perform for an employer.  

The Test For Unpaid Interns. To confirm FLSA determination of internship and to avoid employment obligations, the following six criteria must be applied:

 The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

  1. The internship experience is for the benefit of the intern;
  2. The intern does not displace regular employees, but works under close supervision of existing staff;
  3. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  4. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  5. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

 Assuming these are met, no employment relationship exists, and the FLSA’s minimum wage and overtime provisions do not apply. This employment exclusion is necessarily quite narrow because the FLSA’s definition of “employ” is very broad.

Other States. Some state statutes, like New York’s Minimum Wage Act and Wage Orders impose rules and guidelines in addition to the FSLA. California and Oregon recently extended application of sexual harassment and discrimination laws to interns.  By the way, none of these laws are apply to governmental employees.

Tilting the Scales in Your Favor.

The more your internship program is structured around a classroom or academic experience as opposed to your actual operations, the more likely the internship will be viewed as an extension of the student’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit).  The more the individual receives skills viable in multiple employment settings, as opposed to skills particular to your particular operation, the more likely your intern would be viewed as receiving training.  Ideally, your intern does not perform routine business work on a regular and recurring basis, and the business is not dependent upon the work of the intern.  On the other hand, if your interns are engaged in your operations or perform productive work (for example, filing, performing other clerical work, or assisting customers), then incidentally receiving new skills or improved work habits will not exclude application of the FLSA’s minimum wage and overtime requirements.