Posted By
Joshua Mates

Scenario 1:  You need additional staff for your growing business or an upcoming project, but want to avoid the expense of hiring new employees.

Scenario 2:  You would like to set up an intern training program as a means of recruiting and promoting the company.

You have heard of other companies using unpaid interns for similar situations, and want to explore that option.  This can be a risky move.  If “unpaid interns” are really acting as “employees,” then they are misclassified, and you can be hit with costly worker lawsuits or government penalties.

We want to help you to understand when an unpaid internship program can be appropriate for your workforce, and how to implement the program.

Establishing Unpaid Internships

In any industry, workers are presumed to be employees, and must be paid at least minimum wage, provided required benefits, and subject to wage and hour and tax laws.  Only in rare circumstances can you use unpaid interns and avoid these requirements.  To establish a proper unpaid internship, you must meet the following criteria:

  1. The internship is similar to that which would be given in an education environment, even though it includes actual operation of the employer’s facilities.
  2. The training is for the benefit of the intern, as opposed to primarily for the company’s benefit.
  3. The interns do not displace your regular employees, but work under your close observation.
  4. You derive no immediate advantage from the activities of the intern, and on occasion your operations may actually be impeded somewhat by the training process.
  5. The interns are not necessarily entitled to a job at the conclusion of the training period.
  6. Both the intern and the company understand that the intern is not entitled to wages for the time spent in training.

Some states impose additional criteria.  Such requirements make it clear that the purpose of an internship must be a training experience for the intern, not a means of obtaining free work for the Company.

If the criteria above are not met, then the “interns” are actually short-term or part-time employees and must be classified as such. 

Practical Tips for Properly Classifying Interns

If you think you can meet the criteria, consult with your attorney and consider the following steps to establish a proper unpaid internship program:

  • Coordinate with Local Colleges and Universities: Generally, the more an internship program is structured around an academic experience, as opposed to your immediate business needs, the more likely it will qualify for unpaid status.  This often occurs where a college or university oversees your internship program and provides educational credit or where you work around the interns’ academic curriculum and schedule.
  • Sign Special Offer Letters: Unpaid internships must be for a short, fixed duration.  You must inform unpaid interns that they are unpaid.  Having a special offer letter clearly identifying the terms of the engagement is essential.  You should also avoid providing unpaid interns any benefits offered to your regular employees.
  • Avoid Routine or Administrative Work: Providing interns with skills that can be used in multiple employment settings will increase the likelihood the intern can be unpaid.  This means that the intern should not perform routine or administrative work (e.g., making copies or sorting mail) on a regular basis, and your business should not be dependent on the intern in any way.
  • Assign Designated Supervisors: Providing the same level of supervision to  an intern as your other employees suggests that the intern should be paid.  Instead, provide “job shadowing” opportunities that allow interns to learn certain functions under close supervision of regular employees.
  • Develop Intern Program Materials: Developing program materials, such as a brochure, internship program manual, or training course materials, will increase the likelihood that the internship program qualifies for unpaid status.  All materials should have a disclaimer that the internship program is designed as a learning experience and does not guarantee an offer of employment.

Alternatives to Unpaid Interns

The safest and simplest way to avoid potential misclassification is to classify individuals as temporary employees and comply with applicable wage and hour and tax laws.  In some states, there may be other available alternatives, such as apprenticeship and student learner programs.

Contact your attorney for assistance with designing intern programs, evaluating the legal classifications, and considering alternatives.