Unpaid internships are a great way for college students or recent graduates to gain valuable work experience in their chosen industry and a great opportunity for businesses to evaluate potential future employees. However, unpaid internships also create potential for liability if the internship program does not comply with government requirements.

In April 2010, the Department of Labor released federal guidelines applicable to “for-profit” private-sector employers defining what makes an intern an employee versus a trainee. This is an important distinction because interns that qualify as employees are subject to the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA).

If a court or government agency determines that an unpaid intern’s work qualifies him or her as an employee, the business could face penalties, including unpaid wages, taxes not withheld, social security, unemployment benefits, interest, attorneys’ fees, and liquidated damages (defined by federal law as double the unpaid wages).

Regulators are cracking down on unpaid internship programs due to concerns that interns are displacing paid employees in an effort by the business to increase payroll tax revenues. Now is as good a time as any to review your internship program to ensure you are in compliance.

Internships in “for-profit” private-sector businesses will most likely be deemed as employment unless the internship meets the following six factors:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or other educational institution.
  2. The internship is for the benefit of the intern.
  3. The intern does not displace a regular employee, but instead 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 the employer’s 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 intern understand that the intern is not entitles to wages for the time spent in training.

If all of the above factors are met, the intern is a trainee, not an employee; an employment relationship does not exist under the FLSA and the minimum wage and overtime requirements are not applicable.

Companies can take steps to protect themselves should a regulator or court question their internship program.

  • Academic Credit – Have the intern, if they are still enrolled in an educational institution, request academic credit for the internship. Coordinate with the educational institution to ensure the internship meets the requirements for academic credit.
  • Diversified Skills – An internship is more likely to be viewed as training if it provides skills that can be used in multiple settings, for any employer. The more specialized the training is to your business, the less likely it will be viewed as educational training.
  • Job Shadowing – Interns should be allowed to observe different aspects of the employer’s operations without needing to perform services at all times. Remember, the intern is there for training, not to meet a quota.
  • No Supervisory Duties – Do not allow an intern to supervise regular employees or other interns. This is a role for a paid employee. If you have your intern supervise others, it may be viewed as employment.

It is important for employers to review their internship programs to ensure compliance with government requirements. Make sure your internship program and each intern in it meets the six factors outlined above. Confirm that your interns are trainees and not employees. The last thing any business wants is a hefty fine for unpaid wages, taxes not withheld, or attorneys’ fees.

If you have any questions about your internship program and whether it complies with government standards, please contact us here at the Nevada Association of Employers.

For nearly 80 years, the Nevada Association of Employers (NAE) has been providing Nevada businesses with services and support that help them successfully operate and grow their businesses. NAE continues to offer the same great services and support that we have always offered our members as well as new services to keep members at the forefront so they can succeed in an everchanging business climate.