Essential Payroll Series 2014- Interns (Paid or Unpaid)

So you want to help out the next generation, you want to provide some real world experience to an up and coming college student, and who knows, you may find your next employee. Sound familiar? Thousands of companies employ interns, but few know this is an area the Wage and Hour Division targets for payroll compliance.

Do you employee unpaid interns?  In the last three years the Wage and Hour Division has made a concerted effort to investigate incoming complaints from those employed as unpaid interns.

Many companies consider giving an opportunity to a college student an act of good will, the benefit (compensation) is the students “hands on” experience many times in the field they are pursuing.  However that is not how the Wage and Hour Division sees the position of “unpaid” intern.

Under the Fair Labor Standards Act there are specific criteria that must be met for an intern to be unpaid.

  1. the internship must be similar to training given in an educational environment
  2. the experience is for the benefit of the intern
  3. the intern does not displace regular employers and works under the close supervision of existing staff
  4. the employer provides training and derives no immediate advantage from the activities of the intern
  5.  the intern is not necessarily entitled to a job at the completion of the internship
  6. the employer and intern understand the intern is not to be paid

There have been several companies’ assessed significant penalties in the last three years due to utilizing the services of unpaid interns in violation of the guidelines. One of the most reported has been the Elite Model Management Corporation which has reported settled litigation related to unpaid interns for around $450,000.

If you utilize interns review these items.

  1. Does the intern preform a service with the company profits?
  2. Does the intern replace an employee?
  3. Is there an indication the intern will be employed upon completion of college?
  4. Does the intern work in the same capacity of an employee and is treated like an employee?

If the answer to these questions is generally yes this is likely a paid position not an unpaid position.

Sooo, if you were to be audited by the Wage and Hour Division would your intern relationships be in compliance? If you would like to know more about how to evaluate intern relationships and know that you are in compliance contact

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