Do I Need to Pay Interns at My Small Business?

Date: July 23, 2010

As the head of a startup or budget-conscious small business, you may have thought about hiring unpaid interns. It’s a win-win for both parties, right? Young, inexperienced workers can benefit from real-world training while your company benefits from a fresh perspective and cheap labor.

But when deciding whether or not to pay your interns, keep in mind the U.S. Department of Labor requires organizations to meet six strict criteria in order to use unpaid interns. Here are the criteria, taken from the Fair Labor Standards Act:

Rule 1: “The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction.” Meaning: Your interns’ training should be more centered on the craft they’re learning—accounting, writing, welding, etc.—than your business’ specific operations.

Rule 2: “The training is for the benefit of the trainees.” Meaning: In line with Rule 1, an unpaid program should only be teaching interns skills they can take elsewhere and are in their long-term interest—not skills or processes that can only be used at your business.

Rule 3: “The trainees do not displace regular employees, but work under their close observation.” Meaning: If your small business would have to hire additional employees or require current employees to work overtime if the interns weren’t around, you don’t meet the criteria for an unpaid program. However, interns can be unpaid if they are primarily shadowing you or your employees while performing minimal work.

Rule 4: “The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.” Meaning: More of the work associated with an unpaid internship program should fall on the business when training its interns, rather than on the interns in completing work for the business. In other words, like Rule 2 states, the program is largely for the benefit of the interns, not the benefit of the business.

Rule 5: “The trainees are not necessarily entitled to a job at the conclusion of the training period.” Meaning: The Labor Department does not look kindly on unpaid programs that frequently offer a job upon completion. Why? The practice, the department contends, can be used to lure workers to a job in exchange for unpaid labor.

Rule 6: “The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.” Meaning: Because of the practice outlined in Rule 5 that the DOL wants to avoid, the basic premise of an unpaid internship must be understood by both the business and the intern before the program begins. There cannot be a promise for “back wages” if an intern is eventually hired.

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