Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Robin Bond, Esq., @robinbond. Founder of Transition Strategies, LLC, an employment law firm in Philadelphia, PA, Robin is most known as an attorney who helps employees negotiate for pay, perks and protections in job offer negotiations, but she also represents many small businesses, and for 10 years was an in-house legal counsel. Robin is the author of How to Negotiate a Killer Job Offer. For more information: www.transition-strategies.com.
SmallBizLady: How do I determine whether an internship must be paid or legally can be unpaid?
Robin Bond: Students doing internships with private “for-profit” businesses have the legal right to be paid unless the business satisfies six specific criteria provided by the U.S. Department of Labor (DOL) in Fact Sheet #71. In a nutshell, if an intern with a “for profit” organization is helping the business in any way — doing anything of value other than learning for the intern’s own benefit – the intern has to be paid. Even if the intern wants to volunteer without pay, the Department of Labor does not allow individuals to “volunteer” for private, “for-profit” businesses unless all of the legal criteria for an unpaid internship are satisfied. There’s more leeway for nonprofits.
SmallBizLady: What are the 6 criteria of a legal unpaid internship?
Robin Bond: Under the DOL’s test, all of the following criteria must be satisfied for an intern of any age – student or adult — to be properly classified as an unpaid intern: (1) The internship is similar to training provided in an educational environment, (2) The intern is the primary beneficiary of the internship, (3) Regular employees are not displaced by the intern; instead, the intern works under their close supervision, (4) The employer can derive no immediate advantage from the internship; (5) The intern is not necessarily entitled to a job when the internship ends, and (6) Both the employer and the intern understand that the internship is unpaid.
SmallBizLady: What if I meet most of these criteria but not all of them?
Robin Bond: The DOL takes the position that unless all of the criteria are satisfied, interns have the legal right to be paid. The most difficult of these criteria for many private organizations to satisfy is (4) — that the organization derives “no immediate advantage” from the intern’s work. If an intern is merely shadowing, observing, and doing “mock” assignments, or where a supervisor spends significant time teaching, or supervising the intern’s work, this criterion may be satisfied. However, if an intern make copies, runs errands, answers the phone, and helps prepare work product independently, the private organization generally will be considered to be deriving a benefit from the intern’s work.
SmallBizLady: If academic credit is awarded for an internship with a private, “for-profit” employer, can the intern now legally be unpaid?
Robin Bond: Unless the internship satisfies all of the 6 DOL criteria for an unpaid internship set forth above, the law entitles an intern to be paid at least minimum wage, regardless of whether academic credit is also awarded. Academic credit satisfies item (2) of the six criteria test; however, as long as the employer is getting any immediate advantage from the work of the intern, the intern would still have to be paid. The federal minimum wage law currently is $7.25/hour; however, if the state where you do business has set a higher minimum wage, you have to pay whichever rate is higher.
SmallBizLady: Can’t I just call my interns “independent contractors” and get around the employment problem that way?
Robin Bond: An independent contractor is someone who meets the Internal Revenue Service Test for being an independent professional, who needs little supervision or guidance, and who controls the way his work is performed. By definition, “trainees” like interns cannot be “independent” contractors. Treating interns as independent contractors exposes the company to IRS audit and tax liability.
SmallBizLady: Who are all the authorities regulating the laws on unpaid internships?
Robin Bond: The Federal Department of Labor’s Wage and Hour Division enforces the federal Fair Labor Standards Act – the minimum wage law that prohibits “off the clock” work. The key issue in determining if work is being done – which requires pay – is whether the intern is just learning or doing something for the benefit of the business. Additionally, each state has an agency for enforcement of that state’s wage and hour laws. And any time wages are not paid, the IRS will eventually get involved to collect back taxes and penalties.
SmallBizLady: Does the court system ever come into play in these cases, and if so, how?
Robin Bond: The courts will hear cases that get that far, and different jurisdictions have developed three separate tests for enforcing the laws on when internships should be paid: (1) strictly enforcing all 6 criteria, (2) applying a “primary benefit” test in determining if the internship should be paid, or (3) a totality of the circumstances test. The problem is that the risks and costs of litigation are very high, even if you eventually “win” in court – the legal costs are way higher than paying minimum wage to interns, or structuring your internship programs properly to comply with the law in the first place.
SmallBizLady: What is the Full-Time Student Program?
Robin Bond: This program is for full-time students employed in retail or service stores, agriculture, or colleges and universities. An employer that hires students has to obtain a certificate from the DOL which then allows the student to be paid not less than 85% of the minimum wage, limits the hours that the student may work to 8 hours in a day and no more than 20 hours a week when school is in session and 40 hours when school is out, and requires the employer to follow all child labor laws. Once students graduate or leave school for good, they must be paid at least the federal minimum wage.
SmallBizLady: What is the Student-Learner Program?
Robin Bond: The Student-Learner program is for high school students at least 16 years old who are enrolled in vocational education (shop courses). The employer that hires these students can obtain a certificate from the Department of Labor which allows the students to be paid not less than 75% of the minimum wage, for as long as the student is enrolled in the vocational education program. To obtain a student-learner certificate, you need to contact the Department of Labor, Wage and Hour Division’s, National Certification Team in Chicago, Illinois.
SmallBizLady: Can a student “volunteer” for an unpaid internship for a government agency or non-profit organization?
Robin Bond: Yes, individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious or humanitarian objectives, not as employees and without contemplation of pay, are not considered employees of the religious, charitable or similar non-profit organizations that receive their service. Although people may not volunteer services to for-profit private sector employers, in the vast majority of circumstances, individuals can volunteer services to charities and public agencies and communities. There is one exception – public sector employers may not allow their employees to volunteer without compensation to do the same work for which they are employed.
SmallBizLady: What happens if a DOL audit determines that my internships do not qualify to be “unpaid” under the labor rules?
Robin Bond: The employer would have to pay the interns back wages for minimum wage and any overtime worked, as well as all unpaid state and federal taxes, plus interest and penalties. An employer could also be liable for unpaid benefits, unemployment insurance coverage and potentially face DOL fines of $1,100/incident, unlimited civil money penalties, and associated legal fees and expenses. In addition, the DOL reports the unpaid wages to the IRS, and the employer is subject to IRS scrutiny, penalties and interest.
SmallBizLady: What are the best things I can do to have a legally-constituted unpaid internship program?
Robin Bond: Almost all DOL audits of employers arise due to complaints by disgruntled interns or their parents. The best way to avoid this is to meet all 6 DOL criteria, and to treat interns well by providing a true educational experience instead of working them for long hours doing only menial, meaningless, thankless tasks. Tips: (1) Formalize the educational component, (2) Have a formal mentor, and provide close supervision, (3) Have an outline of the program’s daily learning modules, (4) give interesting work, and (5) Time-limit the internship.
If you found this interview helpful, join us on Wednesdays 8-9 pm ET; follow @SmallBizChat on Twitter. Here’s how to participate in #SmallBizChat: http://bit.ly/S797e
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.
Leave a Reply