5 Tips for Businesses Considering Unpaid Internships

Unpaid internships come with significant benefits for university students, including the potential to gain the real-world experience employers want to see before they start a lucrative career in their chosen field. However, there are risks for businesses considering taking on unpaid interns. With strict federal and state requirements in place, it is important for businesses to understand that using interns as ‘free’ labor can quickly become very expensive if an intern raises a wage claim. The California Division of Labor Standards Enforcement (DLSE) and the Department of Labor (DOL) do not treat internships lightly. Employers using or considering the use of unpaid interns should carefully evaluate the work interns will be performing.

5 Tips for Businesses with Unpaid Interns to Manage Legal Risk

Tip 1: Know and Understand the DOL Requirements for Unpaid Internships. 

The DOL has provided an overview of the test the courts use to determine whether a student/intern should be classified as an employee. The test focuses on who receives the primary benefits from the placement. Where the employer is the primary beneficiary, an employment relationship is established. For a party to be classified as an intern, they must be the primary beneficiary. 

The DOL outlines the following factors in identifying the primary beneficiary in determining whether an employment relationship with an intern exists: 

• Both parties understand that the intern is not entitled to compensation.
• The internship provides training that would be given in an educational environment.
• The intern’s completion of the program entitles him or her to academic credit.
• The internship corresponds with the academic calendar.
• The internship’s duration is limited to the period when the internship educates the intern.
• The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.
• The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.

*Certain states, such as California, have additional rules in place surrounding the legality of unpaid interns, including the submission of an outline of the proposed internship to the DLSE.  Although state regulations are similar to federal rules, there are key differences.  

Tip 2: Ensure Your Unpaid Interns Sign a Written Agreement. 

A signed written agreement provides clarity and certainty for both the company and the intern. This agreement should outline the following: 

• No compensation will be paid at any point during the internship.
• The duration and hours of the internship. It should run for a limited duration and should take the intern’s academic obligations into consideration. 
• The intern is not entitled to paid employment at the conclusion of the unpaid internship.
• Details of requirements that must be met for the intern to receive academic credit for their participation. 
• The name and details of the team members who will responsible for providing oversight and support to the students/interns throughout the program. 

Tip 3: Your Unpaid Interns Should Have Oversight and Support. 

Since the unpaid internship is for the primary benefit of the intern, companies that provide internship opportunities should expect to provide oversight and support to interns. Interns should shadow employees or participate in supported activities that don’t directly benefit the employer, such as ‘mock’ tasks. This requirement may, at times, impede your operations – since this support and oversight will take up your paid employees’ time. 

If a business anticipates that interns will need to work without supervision or support, it is likely that they would be classified as employees and would be entitled to at least minimum wage, as well as entitlements (like overtime). 

Tip 4: Require the Interns to Receive Credit. 

Historically, the DOL and DLSE have required that any unpaid trainee/intern should receive academic credit for their participation. The DLSE suggests that participation should be an essential part of an established course at an accredited educational institution. 

A benefit of this requirement is that the education provider will (typically) provide oversight and support for participating interns, which reduces the risk and the burden placed on the companies providing the internships. 

Tip 5:  Consider Paying Minimum Wage if You’re Uncertain About Your Obligations. 

Ultimately, paying the participating students/interns at least minimum wage is going to be cheaper than defending an unpaid wages claim. It may also be less costly and less burdensome than the process of submitting your unpaid internship program outline to the California DLSE for approval or seeking formal advice from your legal counsel. If you’re uncertain about your obligations, consider classifying the individual as a temporary employee. Doing so gives you the freedom to task your student workers with administration and activities that benefit your business (at minimum wage) without fear of repercussions.  

If you’re considering taking on unpaid interns and you’d like some guidance about your legal risk, reach out. We’re here to help! 

Feel free to write in if you have any topics you’d like us to cover, too. Send an email to info@cgl-llp.com or comment on the social post sharing this content! 

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