Consultant’s Corner: Using Interns

Consultant’s Corner: Using Interns

Question: I want to begin working with student interns, giving them course credit and real-world experience before entering the actual work place. Where should I start?

Workers engaged as interns can be paid or unpaid, but our response assumes that your question refers to engaging workers as unpaid interns. In order to engage workers as unpaid interns rather than employees, a business generally has to establish an internship program that takes advantage of the trainee exception to the minimum wage and overtime requirements under the Federal Fair Labor Standards Act, or FLSA, which isn’t possible for every small business. The FLSA is the federal wage and hour law which sets basic minimum wage, overtime pay and child labor standards. Under the FLSA, workers who are considered employees are required to be paid minimum wage and overtime pay unless they qualify for one of the exceptions under the FLSA. Not all categories of workers are considered employees under the FLSA.

For example, independent contractors and certain volunteers and trainees are not considered employees under the FLSA and are therefore not subject to the FLSA’s minimum wage and overtime provisions. When an intern qualifies as a trainee under the FLSA, the intern is exempt from the FLSA’s minimum wage and overtime provisions and does not need to be paid.

While many internship programs take advantage of the trainee exception to the FLSA, internship programs must be carefully structured to avoid violating the FLSA. In terms of trainees, the Department of Labor (DOL) has developed a six-factor test for trainee status under the FLSA, which applies to interns. Of the six conditions, the two most important rules are that the employer must not obtain immediate advantage from the activities of the intern and an intern cannot displace a regular employee. If the internship primarily benefits the intern and has a sufficient nexus to the intern’s education, it is not likely to be deemed an employment relationship for which wages must be paid. On the other hand, if the intern is used to perform the work of regular employees, or if an employer uses the internship to provide on-the-job training for the future of its own employees, this violates the FLSA and the intern will be regarded as an employee. You can review discussions on trainee status under the FLSA and the DOL six-factor test at the following websites:

Wage and Hour Division | DOL.gov

Internships are generally designed to help students gain experience and training in their chosen professional field and often earn class credits, which is different than general, or in-house, student employment or work programs. Official intern programs are often coordinated through a school or university. To determine if your particular jobs would qualify for an internship program and to identify any internships that apply to your business, we suggest you start by contacting local colleges or technical schools. The schools will have guidelines, which may or may not include course credit. If there are problems with an official internship, there are still opportunities for employing students in an unofficial internship. As we discussed above, unless they qualify as trainees under the FLSA, your interns will need to be paid. However, most internships, including those that provide course credit, provide interns with a reasonable wage. You can review additional information regarding internship programs at the following websites:

Keys to Hiring a Good Intern | LeadingEdgeAlliance.com

How to Start an Internship Program | Gaebler.com

Example employer guides to internships from universities with an internship program:

Georgia Tech Employer Internship Guide | GATech.edu

Berkeley Employer Internship Guide | Berkeley.edu

If you are uncertain about whether you can establish an unpaid internship for your business after reviewing the above information, we recommend that you review your hiring plans with a local labor lawyer to clarify the application of the FLSA and DOL guidelines to your situation and help you develop your internship program. Assuming interns are classified as employees and not as trainees under the FLSA and DOL guidelines, then you should follow all the new hire procedures with them that you would with any new employees.

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About the author

Bill Wortman

Bill Wortman is the Chief Business Consultant for GoSmallBiz.com, with over 40 years of business experience. In addition to 12 years consulting small business owners, Bill’s professional career includes a big-eight CPA accounting firm, national consumer finance, big-three automotive manufacturing, Arby’s fast food, marketing, and other industries. He’s held multiple executive-level positions and fulfilled the role of CFO at large, publicly held (NYSE, NASDAQ, and AMEX) corporations. In addition, he’s been an owner of private ventures involving residential real estate development and a General Motors new car dealership.

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