Legal Considerations

for Recruiting and

Hiring Interns
Legal Considerations for Recruiting and Hiring Interns

BENEFITS & HIRING & MANAGING KEEPING RUNNING A

PERKS ONBOARDING YOUR TEAM COMPLIANT BUSINESS 101

Table of Contents

3 INTRODUCTION
Recruiting and Hiring Interns

4 PART ONE
A Primer on Employment Law

7 PART TWO
The Consequences of Unpaid Internships

8 PART THREE
Tips for Hiring Interns

10 CONCLUSION
Justworks Can Help

2
INTRODUCTION

Recruiting and Hiring Interns

Historically, unpaid internships have given college students and young professionals
a chance to get their feet wet and network in their chosen field. Companies often
considered these non-monetary benefits compensation enough. However, in recent
years, businesses have been on alert as to the legality of unpaid internships.

If your company employs unpaid interns, you could be Important note: This article addresses
unwittingly exposing your business to massive liability. federal law. Applicable state and local
If you're a non-profit charitable organization or in the wage and hour laws may impose
public sector, interns may count as volunteers, in which additional or different requirements.
case they don't need to be paid. However, if you're a In addition to the FLSA's
for-profit business, not paying interns may be a more requirements, employers may also
difficult case to argue. Unless an exception or
have obligations with respect to
exemption applies, any work performed is subject to
interns under other federal, state, and
the Fair Labor Standards Act’s minimum wage,
local employment laws (e.g.,
overtime pay, and other requirements, and unpaid
complying with anti-discrimination
interns could sue you for monetary damages.
and anti-harassment laws).

This guide will walk you through the potential pitfalls of

recruiting and hiring interns, and show you some best
practices for navigating the process.

3
PART ONE

A Primer on Employment Law

Employers and interns historically have seen

unpaid internships as a win-win — employers
get free labor and interns get valuable
Employers must comply
experience. Internships can be mutually
beneficial, but employers must comply with with minimum wage,
minimum wage, overtime pay, and other overtime pay, and other
requirements under the Fair Labor Standards requirements under the
Act (FLSA) unless unpaid interns are not Fair Labor Standards
employees for purposes of the FLSA. Act (FLSA).

The Fair Labor Standards Act (FLSA)

Introduced in 1938, the Fair Labor Standards Act, or
FLSA, is a federal law which regulates minimum wage,
overtime, equal pay, record-keeping, and child labor.

The FLSA generally requires employers to pay

employees at least the minimum wage for all hours
worked and overtime pay at a rate of 1.5 times the
employee’s regular rate of pay for hours worked over
40 in a workweek.

5
That is the “Cliff’s Notes” version of a complex piece of legislation that has had
employers scratching their heads since 1938. Thankfully, the Department of Labor
(DOL) has tried to simplify things a little for you with its “Handy Reference Guide
to the FLSA.” To distill the basics down even more for you, we’ve summarized the
highlights of the FLSA as they relate to internships here:

Minimum wage Recordkeeping

As of 2018, federal minimum wage is still at $7.25/hour. Employers are required to keep records
Unless your interns meet exemption criteria, you’ll have on wages, hours, and other items as
to pay them at least that, assuming your state or local specified in FLSA (and applicable state
minimum wage isn’t higher. and local) recordkeeping regulations,
such as the employee’s home address
Overtime and occupation. Records required for
exempt employees differ from those for
Non-exempt interns cannot work more than 40 hours
non-exempt employees. You can read the
each workweek without an overtime rate that pays at
FLSA recordkeeping requirements here.
least one-and-a-half times the regular rate. If you’re
paying the federal minimum wage, overtime pay would
be about $10.88 per hour. It’s important to note that
state and local overtime pay requirements may vary.
Interns and students may not be
"employees" under the FLSA — but only
Child labor
if the internship meets certain criteria
The FLSA’s child labor provisions are designed to discussed in the upcoming pages. If
ensure that when minors work, the work is safe and those criteria are not met, you may create
does not jeopardize their health, well-being or an employment relationship with an
educational opportunities. You can learn more about intern, which would effect compensation,
details on child labor laws here. States have child labor discrimination laws, benefits, and
standards, and age limitations differ from state to state. unemployment insurance coverage.

6
The Primary Beneficiary Test
The U.S. Department of Labor (DOL) applies the "primary beneficiary" test to determine whether
an intern is, in fact, a trainee or an employee for purposes of the FLSA.

1 The extent to which the intern and the employer clearly 5 The extent to which the internship’s
understand that there is no expectation of compensation. duration is limited to the period in
Any promise of compensation, express or implied, which the internship provides the
suggests that the intern is an employee — and vice versa. intern with beneficial learning.

2 The extent to which the internship provides training that 6 The extent to which the intern’s work
would be similar to that which would be given in an complements, rather than displaces,
educational environment, including the clinical and other the work of paid employees while
hands-on training provided by educational institutions. providing significant educational
benefits to the intern.
3 The extent to which the internship is tied to the intern’s
formal education program by integrated coursework or 7 The extent to which the intern and
the receipt of academic credit. the employer understand that the
internship is conducted without
4 The extent to which the internship accommodates the entitlement to a paid job at the
intern’s academic commitments by corresponding to the conclusion of the internship.
academic calendar.

The DOL will review each case individually with the primary beneficiary test. It’s a flexible test,
with no single factor being determinative.

6
PART TWO

The Consequences of
Unpaid Internships

You may think not paying interns is just good business. After all, what business
wouldn’t welcome free labor? The reality is that illegally using free interns could
end up costing you millions.

Companies run a big risk if they misclassify an employee as an The bottom line is that it is
intern, which could result in back pay, liquidated damages, much easier to just pay interns
punitive damages, interest, and attorneys’ fees and costs. What's minimum wage and overtime
more, the claims could be brought as a class action on behalf of pay in the first place. Which
all unpaid interns during the relevant time period. If the court would you rather pay: minimum
rules against you and reclassifies your former intern as a former wage and overtime pay to a
employee, in addition to the damages noted above, your part-time intern for a semester

company may be liable for workers’ compensation contributions, or two or hundreds of

unemployment insurance and benefits, and state and federal thousands to dozens of interns

taxes not withheld. at once under a court order?

On top of the financial consequences, your company could face

bad publicity, investigations by the DOL, and civil fines. Even
assuming that you prevail, your company could still be saddled
with the astronomical legal costs of defending these claims.

7
PART THREE

Tips for Hiring Interns

As you’ve probably gathered, when it comes to recruiting and hiring interns, there
is a right way and a wrong way. This chapter will give you tips to help you stay on
the right side of the law with your internship programs.

Here are some additional guidelines to help you comply with requirements related to hiring:

Distinguish between for-profit Offer college credit.

and nonprofit. In July of 2015, the court upheld Hearst
Unpaid interns for non-profit charitable organizations, and Fox Searchlight unpaid internships
where the intern volunteers without expectation of because of their educational value. One
compensation, are generally permissible. way to guarantee educational value is to
coordinate with a school to offer course
Review the “primary beneficiary” test. credit instead of pay. Doing so, of course,
still has to comply with the guidance in
Recall from Chapter 1 the seven factors the DOL uses
the primary beneficiary test.
to determine whether an employer legally has to pay
an intern or trainee.
Pay applicable minimum wage
Don’t hire interns. and overtime pay.
This is the head-in-the-sand approach, yes, but it’s also The easy, and comparatively cheap, way
a safe one. You can avoid the to-pay-or-not-to-pay to avoid future intern woes.
intern conundrum by simply doing away with the
practice of hiring them.

8
A good way to ensure that your intern recruitment
complies with the law is to have it mirror your selection and
hiring process for regular employees as closely as possible.
Before you begin
Here are a few additional tips to guide your recruiting:
recruiting, write a job
• Never promise a paid position once the internship is description that explicitly
complete. Not only does promising an intern a paid job maps out the duties and
jeopardize the legal status of your unpaid internship
projects associated with
program, but promising your interns a paying job may
the internship.
create a contractual agreement to indeed do so. Avoid
promising a paying job upon completion of the
internship or implying that you only hire former interns.

• Be clear about the ground rules and expectations in

advance. Before you even begin recruiting, make sure
you have details like compensation, school credit,
supervisors, schedules, selection and performance
criteria, and internship lengths worked out. Also write a
job description that explicitly maps out the duties and
projects associated with the internship.

• Follow equal opportunity laws in recruiting and hiring.

We also provide a blog post all around recruiting a
diverse pool of interns.

• Cover interns under your worker’s compensation policy

to limit liability exposure. Remember that the law
almost always requires you to provide workers’
compensation coverage for your interns, paid or unpaid.

9
 CONCLUSION

Justworks Can Help

By now, you're well aware that hiring and recruiting unpaid interns
can be risky. Without the proper procedures, you open your business
up to government investigations, exorbitantly expensive lawsuits, and
damaging PR. Trying to comply with applicable laws and regulations
can be difficult.

Justworks exists to make it simple for businesses like yours to hire

and take care of quality people, including interns. While we don’t
provide legal advice, we do provide HR best practices and resources
to help our customers comply with employment requirements. In
other words, we help you get back to what you do best: growing your
business and creating a great place to work.

This material has been prepared for informational purposes only, and is not
intended to provide, and should not be relied on for, legal or tax advice. If you have
any legal or tax questions regarding this content or related issues, then you should
consult with your professional legal or tax advisor.

WANT TO GET STARTED? CALL: (844) 749-7785 EMAIL: [email protected] VISIT: JUSTWORKS.COM 13