Right now, many organizations are getting ready for a new class of interns to arrive in May when schools and colleges finish for the summer. With fully laudable intentions, many organizations offer summer internships as a chance to allow students to get their feet wet in a business or industry, fully recognizing that the students’ contributions and added value, if any, are not that great.
Experience teaches that many organizations do not pay interns. However, this is often a risky proposition. Under the Fair Labor Standards Act, the legal standard to qualify as an unpaid internship is actually quite high. The consequence of failing to meet that legal standard—and in our experience many may not—is that the “intern” is deemed to be a misclassified employee, and would be entitled to be paid minimum wage and overtime for all of the hours worked as an unpaid intern.
This exposure, including liquidated (i.e., double) damages and potential penalties and attorneys’ fees, can be significant. In addition, there could be tax exposure for any unpaid employment taxes and withholdings that were not made because the wages that should have paid were not.
So, if you are considering an unpaid internship program this summer, take the time to ensure it is legally compliant. For those that want to take a closer look at their internship programs, our Client Alert on this issue provides a detailed summary of the compliance issues and risks, and practical tips for employers. The Client Alert can be found here.