Do you pay your interns? If not, then maybe you (legally) should be.

A Twitter exchange with workforce solutions executive Bob Lyons highlighted how small businesses often fall foul of regulatory guidelines when hiring unpaid interns.

Obama era legislation from 2010 determined that unpaid internships must comply with six factors, or companies had to pay their interns at least minimum wage, as well as any overtime they worked.

Companies complained these internship guidelines were too rigid—especially the fourth factor, which states: “The employer that provides the training derives no immediate advantage from the activities of the intern.”

This complaint was echoed by courts including the Second, Sixth, Ninth, and Eleventh Circuit Courts of Appeal.

As a result, in January 2018, the US Department of Labor (DOL) released new rules on classifying unpaid interns as “for-profit” organizations.

What do I need to know about the internship rules?

There are now seven factors that can help for-profit businesses determine whether or not their interns are entitled to minimum wages and overtime pay under the Fair Labor Standards Act.

The test takes into account seven factors, as Veena Iyer, a labor and employment lawyer at Nilan Johnson Lewis, explains: “These factors include:

  • Whether there is an expectation of no compensation
  • Training from the internship is similar to that obtained in an educational environment
  • The ability to accommodate to an intern’s academic calendar
  • The extent to which the work complements rather than displaces the work of paid employees
  • The extent to which the internship is understood to be non-permanent.”

The purpose, according to the DOL, is as follows: “This test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship.”

However, there is no single factor that has to be fulfilled for HR departments to classify people as interns; the test is designed to be entirely flexible.

The DOL also said that its Wage and Hour Division investigators will “holistically analyze internships on a case-by-case basis.”

What are the benefits of the new internship guidelines?

As per our Twitter exchange with Bob Lyons, it was often the small businesses that had difficulty complying with the internship guidelines in the past, leading them to stop offering unpaid internships.

These new rules are aimed at being more employer-friendly than the Obama era legislation.

Tim Sackett, president of HRU Technical Resources, says:

“The new DOL internship test actually give employers more flexibility when it comes to hiring unpaid interns, from prior strict testing they’ve had.

“For the past few years organizations that couldn’t afford paid internships have shied away from hiring unpaid interns because of litigation, but this might open this practice back up which is real benefit for students looking to gain experience for post-graduation employment.”

Paid or unpaid?

In an ideal world, internships would be paid to allow access to anyone from any background at any stage of their career.

In my personal case, many journalism internships (in the UK) were out of reach because they were unpaid, and living in London while doing an unpaid internship was unfeasible.

In the UK, three quarters of people surveyed by the Social Mobility Commission backed a change in the law to stop companies from exploiting unpaid interns.

Chris Jones, Chief Executive of the City & Guilds Group, told HR Grapevine that it was encouraging to see the Social Mobility Commission seeking greater transparency around unpaid internships. “This practice too often results in more doors being closed to those from the most disadvantaged backgrounds because they cannot work without pay and lack the connections to good internships that are not openly advertised.”

undefinedSackett wishes every internship was a paid internship, but understands the budget constraints of small businesses.

He says: “Many organizations do not have the money to provide paid internships, but can provide internship work experience that ultimately will be super valuable to the students in getting highly paid jobs. The key for organizations who are going to ask an intern to be unpaid is to give them great flexibility, so they can continue to work when needed at paid jobs, but also get this experience. It’s difficult, but not impossible.”

undefinedTo get the view from a college student and intern’s point of view, we asked Tim Sackett’s son Cameron, who is a student at the University of Michigan and a Gen Z columnist at timsackett.com, his opinion on the paid versus unpaid debate.

Cameron Sackett said: “Every student wants to be paid. Also, every student wants to have great internships to put on their resume. So, there’s a problem because not everyone will be able to have a paid internship. I think students should look to gain some experience, maybe as an unpaid intern, then use that to build your resume to get a paid internship.”

What about remote internships?

If you are employing interns remotely or in offices at countries outside the US, then the DOL rules don’t apply. For example, all internships at project management software company Basecamp are remote, however these internships are paid.

Of course, as with the example of Basecamp, companies can still choose to pay their interns for their work, even if they can legally classify them as interns.

In the US, you normally need to classify paid interns as normal employees for payroll purposes, unless it’s a rare occasion where you can classify them as independent contractors.

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How to comply with the new internship guidelines for employers

While the new DOL internship guidelines for employers provide more flexibility, that doesn’t mean any internship can be unpaid. Instead small businesses especially need to tread carefully to ensure th

Law firm Morgan Lewis & Bockius LLP gives this advice: “Although the DOL’s new test makes it more likely that, when structured correctly, an intern may be found not to be an employee under the FLSA, this new test should not be interpreted to give employers carte blanche to classify all students as unpaid interns.”

Below are three key factors every that every unpaid internship should be.

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Educational

Iyer encourages employers to ensure intern programs serve an educational purpose and obtain written acknowledgment from interns that they will not be paid or are guaranteed employment.

“This new test expands the safe harbor from the Fair Labor Standards Act (FLSA) liability for employers sponsoring internship programs, but doesn’t eliminate the risk altogether,” adds Iyer.

Cameron Sackett explains how it works at his school:

“At my university (University of Michigan) each college has internship guidelines that employers are given and can follow. I think it’s key for companies to make sure they work with the student and the schools to get all of those guidelines, and if they don’t have guidelines to work with someone at the school to at least come up with something.”

Stephanie Merabet and Amy Carlin, lawyers at Morgan, Brown & Joy LLP law firm, recommend: “Hiring interns through academic programs that provide students with academic credit for participating in student internships.

Next steps: Learn how to write job ads for unpaid internships, and work out how and where to post these job adverts, especially in collaboration with academic institutions

Approved by HR

While these internship guidelines for employers are more flexible than previous legislation, companies still need to ensure they are doing all that is necessary to comply. This means don’t go it alone, but work with experienced HR professionals.

Sackett recommends that departments and hiring managers shouldn’t just do what they ‘feel’ is right (which is more common than you might think).

He says:

“This is where we get into trouble. HR should own the internship program and make sure it’s being followed across the board by all parties.”

It’s also crucial to ensure that the work interns carry out don’t take the jobs that would normally be performed by regular employees.

“The factor that will cause issue is whether or not the work ‘complements’ that work of paid employees,” says Sackett. “This is a real gray area that employers are going to have to dig into with their legal team.”

Next steps: Improve your onboarding process by making sure the tasks you assign to your interns are related to your intern’s academic background

Federal and state compliant

We’ve come across the issue before with absence and leave management regulations, specifically concerning the difficulty of managing the different types of paid leave across different states.

This is also a key consideration when classifying interns, as states often have their own legislation on this issue.

According to law firm Morgan Lewis & Bockius LLP: “Employers will want to ensure that stricter tests under state law do not apply in their respective locations.”

Next steps: Find the best way to keep up-to-date with the rules and regulations in the state(s) or countries you operate. This could be through industry associations, HR publications, or even your HR software and/or vendor

Next steps

If you’re an HR professional and you want to put together an unpaid internship program then there are a number of areas that you’ll need to get in order:

  • Mentoring— ensure that your interns get the opportunity to learn and develop so they can be the primary beneficiary of the internship and you comply with the guidelines.
  • Ensure your payroll processes and software are flexible in case you decide to offer paid internships and need to classify your interns as employees in order to pay them properly.