Small Biz Mythbusters: Unpaid Internships

Unpaid Internships

Myth: As a small business owner, I don’t have to pay interns who receive credit from their school.

Some business owners believe college students seeking summer internships can provide free labor in exchange for school credit. It’s become something of a tradition. After all, these businesses are often helping students gain valuable career experience. That should be enough, right?

Well, in most cases–no. And this misperception, other than in rare situations, can violate the Fair Labor Standards Act and various state laws. It also puts your business at risk. There have been several lawsuits brought by unpaid interns against high-profile corporations over the past few years.

Interns = Employees

If interns are performing work duties on location for your business, they will likely be considered an employee, just like the other staff members on your payroll. In the majority of cases, a business must pay an intern at least the minimum wage, as well as overtime, if applicable.

Internship Criteria

The Department of Labor provides businesses with guidelines to help them navigate the intern issue. This is in the form of a six-part test; if all six criteria are met, an intern can remain unpaid.

  1. The internship—even though it includes actual operation of the facilities of the employer—is similar to training that would be given in an educational environment.
  2. The internship experience is for the benefit of the intern.
  3. The intern does not displace regular employees but works under close supervision of existing staff.
  4. 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.
  5. The intern is not necessarily entitled to a job at the conclusion of the internship.
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

It’s important to note that this list applies to “for-profit” businesses. Unpaid internships in the public sector and for not-for-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.

This blog does not provide legal, financial, accounting, or tax advice. This blog provides practical information on the subject matter. The content on this blog is “as is” and carries no warranties. ADP does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog.
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