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Academic Career Experience & Service Learning

What Do I Need to Know Before Offering an Unpaid Internship?  Plenty! 

Due to recent litigation related to unpaid internships, we are providing the following information to employers regarding the issues of compensation for internships. Each company determines their hiring policies for interns, and we hope the following information and guidelines will be useful to you as you evaluate your company's position on intern compensation.

To help you decide if the internship you offer should be paid or unpaid, take a look at the following information and visit the links in the right side bar:

From The United States Department of Labor - “The Fair Labor Standards Act (FLSA) defines the term “employ” very broadly as including to “suffer or permit to work.”  Covered and non-exempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer.  Internships in the “for-profit” private sector will most often be viewed as employment, unless the test described below (excerpted from "DOL FactSheet71") relating to trainees is met.  Interns in the “for-profit” private sector who qualify as employees rather than trainees typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek."

The Test For Unpaid Interns:  (Please read DOL FactSheet71 in its entirety):

There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation. The Supreme Court has held that the term "suffer or permit to work" cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction. This may apply to interns who receive training for their own educational benefit if the training meets certain criteria. The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.

The following six criteria must be applied when making this determination:

      1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
      2. The internship experience is for the benefit of the intern;
      3. The intern does not displace regular employees, but works under close supervision of existing staff;
      4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
      5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
      6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

 

If all of the factors listed above are met, an employment relationship does not exist under the FLSA, and the Act’s minimum wage and overtime provisions do not apply to the intern.

From The National Association of Colleges and Employers (NACE) – “An internship is a form of experiential learning that integrates knowledge and theory learned in the classroom with practical application and skills development in a professional setting. Internships give students the opportunity to gain valuable applied experience and make connections in professional fields they are considering for career paths; it gives employers the opportunity to guide and evaluate talent.”

NACE Position Statement - U.S. Internships

From the National Council of Nonprofits, here are some tips for avoiding risks when using interns.  (Note:  While the following is directed at nonprofits, it applies to for-profit workplaces that use interns)

Interns can be terrific additions to a nonprofit’s capacity building journey, but it’s important to clarify whether interns are unpaid volunteers or paid employees. If your nonprofit considers its interns "volunteers" but pays them a "stipend," there could be unintended negative consequences. The stipend may cause the Department of Labor to classify the intern as an employee, creating the risk that the nonprofit could owe back wages (to pay the intern at least minimum wage) and back taxes. On the other hand, if your nonprofit is following the wage regulations closely, it may be appropriate to treat the intern as a "trainee" -- relieving the nonprofit of paying minimum wage, but raising the need to document carefully how the internship primarily benefits the intern -- not the nonprofit.

How does receiving a stipend turn an intern into an employee?

A stipend is compensation for services provided to the nonprofit. Those who perform work in exchange for compensation are either employees or independent contractors, and their compensation and tax withholdings are regulated by the Department of Labor (federal and state).

If a nonprofit provides a "stipend" to a "volunteer" intern – that is sending a mixed message to the Department of Labor. While there are some exceptions, most employees must receive minimum wage in accordance with federal and state law. One exception under federal Department of Labor rules is for trainees, who, assuming they qualify, do not have to be paid minimum wage (and thus may be unpaid or receive a "stipend" that amounts to less than minimum wage).

To be considered a "trainee" the internship must primarily benefit the intern – not the employer. The requirements are described in Department of Labor Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act. (While written primarily as guidance for for-profit business concerns, the Fact Sheet also applies to nonprofit workplaces that pay interns.) Nonprofits that pay interns a stipend below minimum wage should be familiar with this Fact Sheet and document how their internship program satisfies the criteria so that the intern can be classified as a trainee. Also note that federal wage laws also require employers that pay over $600 annually in compensation to independent contractors must file an IRS Form 1099.

What if a nonprofit does not pay its interns?

When interns are unpaid, they are volunteers but it’s a good idea to clarify the interns’ non-employee status in writing at the beginning of their tenure.

Ambiguity creates risk: If it is ambiguous whether an intern is an employee or a volunteer there is always a risk that the nonprofit could be liable for back wages and penalties for failing to withhold taxes from wages. Know your state’s laws governing wages and hours of work, and determine whether your interns fall under the definition of "volunteer" or "employee" in your state.

Manage the risk of accidents/injuries to the intern: In some states “volunteers” are not covered by workers’ compensation insurance, so if the intern is injured, volunteer status could prevent him/her from being compensated for injuries. (But if the nonprofit has a “volunteer accident insurance” policy the intern’s medical expenses could be covered by that policy.) It makes sense to let the intern know whether there is insurance coverage upfront instead of delivering the bad news - "You’re not covered" - after an accident!

Clarify the workplace policies that apply to your interns: Example: Most nonprofits have a policy that volunteers may be reimbursed for expenses related to the services they provide the nonprofit - with advance written approval.

Nonprofit Interns

Tips for avoiding risks when using interns

Interns can be terrific additions to a nonprofit’s capacity building journey, but it’s important to clarify whether interns are unpaid volunteers or paid employees. If your nonprofit considers its interns "volunteers" but pays them a "stipend,"  there could be unintended negative consequences. The stipend may cause the Department of Labor to classify the intern as an employee, creating the risk that the nonprofit could owe back wages (to pay the intern at least minimum wage) and back taxes. On the other hand, if your nonprofit is following the wage regulations closely, it may be appropriate to treat the intern as a "trainee" -- relieving the nonprofit of paying minimum wage, but raising the need to document carefully how the internship primarily benefits the intern -- not the nonprofit.

How does receiving a stipend turn an intern into an employee?

A stipend is compensation for services provided to the nonprofit. Those who perform work in exchange for compensation are either employees or independent contractors, and their compensation and tax withholdings are regulated by the Department of Labor (federal and state).

If a nonprofit provides a "stipend" to a "volunteer" intern – that is sending a mixed message to the Department of Labor. While there are some exceptions, most employees must receive minimum wage in accordance with federal and state law. One exception under federal Department of Labor rules is for trainees, who, assuming they qualify, do not have to be paid minimum wage (and thus may be unpaid or receive a "stipend" that amounts to less than minimum wage).

To be considered a "trainee" the internship must primarily benefit the intern – not the employer. The requirements are described in Department of Labor Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act. (While written primarily as guidance for for-profit business concerns, the Fact Sheet also applies to nonprofit workplaces that pay interns.) Nonprofits that pay interns a stipend below minimum wage should be familiar with this Fact Sheet and document how their internship program satisfies the criteria so that the intern can be classified as a trainee. Also note that federal wage laws also require employers that pay over $600 annually in compensation to independent contractors must file an IRS Form 1099. 

What if a nonprofit does not pay its interns?

When interns are unpaid, they are volunteers but it’s a good idea to clarify the interns’ non-employee status in writing at the beginning of their summer tenure.

Ambiguity creates risk: If it is ambiguous whether an intern is an employee or a volunteer there is always a risk that the nonprofit could be liable for back wages and penalties for failing to withhold taxes from wages. Know your state’s laws governing wages and hours of work, and determine whether your interns fall under the definition of "volunteer" or "employee" in your state.

  1. Manage the risk of accidents/injuries to the intern: In some states “volunteers” are not covered by workers’ compensation insurance, so if the intern is injured, volunteer status could prevent him/her from being compensated for injuries. (But if the nonprofit has a “volunteer accident insurance” policy the intern’s medical expenses could be covered by that policy.) It makes sense to let the intern know whether there is insurance coverage upfront instead of delivering the bad news - "You’re not covered" - after an accident!
  2. Clarify the workplace policies that apply to your interns: Example: Most nonprofits have a policy that  volunteers may be reimbursed for expenses related to the services they provide the nonprofit - with advance written approval. 
- See more at: http://www.councilofnonprofits.org/interns#sthash.9sH0m1SV.dpuf

 

Nonprofit Interns

Tips for avoiding risks when using interns

Interns can be terrific additions to a nonprofit’s capacity building journey, but it’s important to clarify whether interns are unpaid volunteers or paid employees. If your nonprofit considers its interns "volunteers" but pays them a "stipend,"  there could be unintended negative consequences. The stipend may cause the Department of Labor to classify the intern as an employee, creating the risk that the nonprofit could owe back wages (to pay the intern at least minimum wage) and back taxes. On the other hand, if your nonprofit is following the wage regulations closely, it may be appropriate to treat the intern as a "trainee" -- relieving the nonprofit of paying minimum wage, but raising the need to document carefully how the internship primarily benefits the intern -- not the nonprofit.

How does receiving a stipend turn an intern into an employee?

A stipend is compensation for services provided to the nonprofit. Those who perform work in exchange for compensation are either employees or independent contractors, and their compensation and tax withholdings are regulated by the Department of Labor (federal and state).

If a nonprofit provides a "stipend" to a "volunteer" intern – that is sending a mixed message to the Department of Labor. While there are some exceptions, most employees must receive minimum wage in accordance with federal and state law. One exception under federal Department of Labor rules is for trainees, who, assuming they qualify, do not have to be paid minimum wage (and thus may be unpaid or receive a "stipend" that amounts to less than minimum wage).

To be considered a "trainee" the internship must primarily benefit the intern – not the employer. The requirements are described in Department of Labor Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act. (While written primarily as guidance for for-profit business concerns, the Fact Sheet also applies to nonprofit workplaces that pay interns.) Nonprofits that pay interns a stipend below minimum wage should be familiar with this Fact Sheet and document how their internship program satisfies the criteria so that the intern can be classified as a trainee. Also note that federal wage laws also require employers that pay over $600 annually in compensation to independent contractors must file an IRS Form 1099. 

What if a nonprofit does not pay its interns?

When interns are unpaid, they are volunteers but it’s a good idea to clarify the interns’ non-employee status in writing at the beginning of their summer tenure.

Ambiguity creates risk: If it is ambiguous whether an intern is an employee or a volunteer there is always a risk that the nonprofit could be liable for back wages and penalties for failing to withhold taxes from wages. Know your state’s laws governing wages and hours of work, and determine whether your interns fall under the definition of "volunteer" or "employee" in your state.

  1. Manage the risk of accidents/injuries to the intern: In some states “volunteers” are not covered by workers’ compensation insurance, so if the intern is injured, volunteer status could prevent him/her from being compensated for injuries. (But if the nonprofit has a “volunteer accident insurance” policy the intern’s medical expenses could be covered by that policy.) It makes sense to let the intern know whether there is insurance coverage upfront instead of delivering the bad news - "You’re not covered" - after an accident!
  2. Clarify the workplace policies that apply to your interns: Example: Most nonprofits have a policy that  volunteers may be reimbursed for expenses related to the services they provide the nonprofit - with advance written approval. 
- See more at: http://www.councilofnonprofits.org/interns#sthash.9sH0m1SV.dpuf

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