Unpaid Interns: Are They Worth It?

So, you want to hire cheap or free labor…doesn’t everyone?

Finding a student to assist in your business might appear to be a win-win option because you can offer them an educational experience in the industry in exchange for their labor.

Before you proceed, it is important to consider that the U.S. Department of Labor has established guidelines for the employment of unpaid interns. It’s not uncommon for interns to sue for unpaid wages in their state, even years after the internship ended. Statutes of limitations for unpaid wages vary from state to state but are generally lengthy.

The Test for Unpaid Interns and Students

This test examines the economic realities of the intern-business relationship to determine who is the “primary beneficiary” of the relationship and whether the intern is actually an employee. The test consists of seven factors, and no single factor is determinative:

1. The extent to which the intern and the employer understand that there is no expectation of compensation. Any promise of compensation may suggest that the intern is actually an employee, or vice versa.

2. The extent to which the internship provides training that would be similar to that which would be given in an educational setting, including hands-on training provided by educational institutions.

3. The extent to which the internship is tied to the intern’s formal education program by coursework or the receipt of academic credit.

4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.

5. The extent to which the internship’s length is limited to the period in which the internship provides the intern with beneficial learning.

6. The extent to which the intern’s work complements, rather than works against, the work of paid employees while providing significant educational benefits to the intern.

7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

The Bottom Line

Whether an intern is considered an employee depends on the unique circumstances of each relationship. If an intern or student is actually an employee — meaning that the employer rather than the intern is immediately benefited by the relationship — then the intern is entitled to both minimum wage and overtime pay. On the other hand, if the intern is not an employee, then he or she is not entitled to payment.

Classifying workers as employees and paying them wages provides peace of mind for all and eliminates ambiguity about their status. However, this article is not intended to provide legal advice. It is best to consult with an attorney before making long-term decisions that will affect your business.

Elana Levine is senior counsel at Jacobson, Russell, Saltz, Nassim & de la Torre in Los Angeles. Her practice focuses on the representation of artists and businesses in the entertainment industry. She can be reached at lani@jrsnd.com.