Unpaid internships are permissible if they meet very specific criteria, but employers should proceed with extreme caution.
The Department of Labor has a six-part test for determining whether interns may be unpaid. As a best practice, we recommend that you use unpaid interns only if all six of these criteria are met:
• The internship is similar to training which would be given in an educational environment;
• The internship experience is for the benefit of the intern;
• The intern does not displace regular employees, but works under close supervision of existing staff;
• 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;
• The intern is not necessarily entitled to a job at the conclusion of the internship; and
• 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 criteria listed above are met, an employment relationship will not be deemed to exist under the Fair Labor Standards Act (FLSA). Without an employment relationship, the intern will not be considered an employee, and thus the Act’s minimum wage and overtime provisions will not apply to them.
In addition to the Department of Labor’s criteria, a U.S. Court of Appeals ruled in 2015 that “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.”
The Court then used a seven-point list very similar to the Department of Labor’s to evaluate the circumstances as a whole.
Be aware that misclassification could be very costly and include back pay, back taxes, penalties, and attorney fees. If you are unsure about your decision to bring on unpaid interns, we’d suggest you err on the side of paying them. If you do decide that your internship program qualifies to be unpaid document exactly how your program meets each criteria.
A final thought: it is important to note that workplace protections like the Civil Rights Act, the ADA, OSHA, and many state-specific laws apply to interns, whether paid or unpaid.