Hiring Student Interns: More Complicated than You May Think

June 13, 2013 Meira Ferziger

Summer has arrived and students are on vacation. Many students are eager to step into the working world for the summer and get some hands-on experience – just to “get a foot in the door” and enhance their resumes. Even if it means not getting paid.

Employers are thrilled: bright, energetic students, who want to make a good impression and are willing to work hard and often for free, or for some sort of bare minimum stipend. It’s a win-win situation. Right? Actually, no – wrong.

Hiring unpaid student interns is more complicated than most employers realize. The U.S. Department of Labor (the “DOL”) has warned that under the Fair Labor Standards Act, unless students are volunteering for a not-for-profit organization (where even there, it’s not black and white), most students classified as “unpaid interns” should actually be classified as employees, and have all laws relevant to employees apply to them – i.e., minimum wage, overtime, payroll taxes, etc. In fact, in most cases, it is actually illegal to have a student internship arrangement in which the student is not paid or receives only a minor stipend.

The Intern Test

When evaluating whether a student may be legally classified as an unpaid intern, consider whether:

  • the internship is similar to training which would be given in an educational environment;
  • the primary purpose of the internship is for the benefit of the intern, not the employer;
  • the intern works under close supervision of existing employees and does not displace regular employees;
  • the employer that provides the intern with training derives no immediate advantage from the intern’s activities, and the employer’s operations may actually be burdened;
  • the intern is not necessarily entitled to a job at the end of the internship; and
  •  it is clear to both the employer and the intern that the intern is not entitled to wages for the time working in the internship.

If the employer’s arrangement with the student intern satisfies the above criteria set forth by the DOL (click here for the DOL guidelines), then the internship may be unpaid.

In practical terms, consider whether the intern performs tasks that an employee would perform, had the intern not been hired, or had the intern not come to work that day. Does the intern spend his or her time at the photocopy machine copying documents for the company’s use? Does he or she answer the company phone when the secretary is on lunch break? At the end of the day, do the people in the office say, “hey, it’s great to have that intern around – it sure does take a load off of us”? If the answer to any of these questions is “yes,” then most likely the intern should be classified as an employee and should be paid as provided under all relevant employment laws.

The Risks

As the above standard demonstrates, the circumstances under which an intern need not be paid are quite narrow, and unless an employer is graciously hiring an intern for the intern’s benefit, the employer’s summer student intern should likely be paid. In addition, unfortunately, a negligible stipend generally does not satisfy the DOL’s requirements for minimum wage or other relevant applicable employment laws, in the case of a student who should be classified as an employee, rather than as an unpaid intern.

Major lawsuits and the abundance of wage claims recently filed by unpaid student interns should serve as a warning to employers as to the risks associated with not paying student interns. Increasingly, student interns are becoming aware of their legal rights to be paid wages, and even after finishing an internship, student interns have been returning to their employers or heading straight to the DOL to claim their unpaid wages. As an extreme example, in February 2013, a group of unpaid interns filed a class action against Elite Model Management Corporation for $50 Million –with all interns claiming unpaid minimum wages, overtime, liquidated damages, attorney’s fees, federal and state taxes, unemployment payments, disability insurance, workers’ compensation, and interest on all such payments.

Practical Steps

Employers should therefore think carefully before hiring a student intern on an unpaid basis—while it may initially seem like a clever way to save money, hiring an unpaid student intern may actually lead to unexpected costs, negative publicity, and the burden of dealing with claims which in most states may be filed for up to 5 years following the student’s completion of an internship.

In the event that the relationship between an employer and a student intern does satisfy the DOL’s internship criteria set forth above, the parties should memorialize the arrangement with a written agreement, which makes it completely clear that the internship is for the intern’s (not the company’s) benefit, and that the intern is not necessarily entitled to a paying job with the employer following his or her completion of the internship. The agreement should also include a clear acknowledgement by the intern that he or she does not have the status of an employee, and understands that the internship will be unpaid.

Meira Ferziger is the head of the labor and employment practice at Schwell Wimpfheimer & Associates and has significant experience in drafting policies, agreements, employee handbooks and guidelines in compliance with U.S. federal and state law. Meira functions as an integral part of the day to day operation of corporate clients by counseling them through their employment-related practices and decisions, and also advises clients as to employment issues that arise from corporate transactions, such as restructurings and acquisitions.

Meira can be reached at 646 328 0794 or mferziger@swalegal.com

This SWA publication is intended for informational purposes and should not be regarded as legal advice. For more information about the issues included in this publication, please contact Meira Ferziger. The invitation to contact is not to be construed as a solicitation for legal work. Any new attorney/client relationship will be confirmed in writing.