Paid vs. Unpaid Interns: Knowing the Law

For college students, one of the biggest life obstacles will be finding and completing an internship in order to graduate. While there are some paid internships out there, many students often find themselves stuck with an internship that doesn’t have funds to offer them in return for their hard work. For many businesses, interns are a great way to recruit potential employees or lighten the workload of their regular employees. Some of these interns are compensated, but many internships today are unpaid.

If your business utilizes interns, this one’s for you. Although it varies by state, you should make sure you’re aware of the labor laws, especially due to the potential for employment practices liability claims. The U.S. Department of Labor has come out with some key criteria that you should be aware of.

What’s the FLSA?

The Fair Labor Standards Act requires “for-profit” companies to pay their employees for the time they are working. However, if the employee is legally a student or an intern, then this law might not apply. In that case, you need to know what criteria qualifies a company to have an unpaid intern. This is when knowing your employment practices liability, as an employer, comes into play.

What’s the Criteria?

The criteria required for a company to have unpaid interns, called a “primary beneficiary test”, includes:

  • Whether an intern and employee have come to the agreement that the position is unpaid. A promise of compensation means that employment is applied, meaning that the FLSA would come into play;
  • Whether the training provided by the internship is educational; if the training is on par with educational institutions, then the internship could be considered an unpaid one;
  • Whether the internship is physically tied into the educational coursework;
  • Whether the internship corresponds with the academic calendar;
  • How long the internship is and how long they’ll be learning for. It’s considered educational if it’s only for a certain amount of time. If prolonged, the intern could be on the grounds for employment;
  • The extent of which the work complements instead of displaces the work of paid employees while providing educational benefits to the intern;
  • The extent to which the intern and employer understand that the internship will not actually result in employment in the future.

Whether you company passes this criteria is up to the courts, with this test being described as flexible with no single determining factor. Each case is unique, so it’s important to make sure you contact an expert when handling these kinds of issues.

About World Wide Specialty Programs

For the last 50 years, World Wide Specialty Programs has dedicated itself to providing the optimal products and solutions for the staffing industry. As the only insurance firm to be an ASA commercial liability partner, we are committed to that partnership and committed to using our knowledge of the industry to provide staffing firms with the best possible coverage. For more information about Staffing Professional Liability Insurance or any other coverage, we have available to protect your staffing business, give us a call at (800) 245-9653 to speak with one of our representatives.

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