Unpaid internships are often viewed as a rite of passage for those entering the workforce. But any business looking to engage an intern must ensure that it does so in accordance with the law. This 3-part article series explains the relevant law (Part 1), outlines how to set up a proper intern arrangement (Part 2) and highlights the importance of getting the arrangement right (Part 3).

Unpaid internships can offer those without relevant experience an opportunity to get their foot in the door in some of the workforce’s most competitive industries. However, businesses need to be aware that unpaid internships are only legitimate when undertaken as part of a vocational placement related to the individual’s course of study or in circumstances where an employment relationship does not exist.

The primary purpose of an internship is for the individual to learn, observe and develop skills. As Fair Work Ombudsman, Natalie James, said in a recent media release, “Employers cannot simply choose to label an employee as an ‘intern’ in order to avoid paying their staff according to their lawful entitlements”.

Intern or employee?

Businesses need to understand the distinction between legitimate unpaid internships, which offer genuine work experience, and sham internships that exploit cheap (or free) labour, to ensure they do not fall foul of the Fair Work Act 2009 (Cth) (FW Act).

To be properly categorised as an unpaid intern, an individual must:

  • be undertaking a ‘vocational placement’; and/or
  • not be in an employment relationship with the business.

Vocational placements

The FW Act expressly excludes individuals on a vocational placement from being considered an employee.

A ‘vocational placement’ is a placement that:

  • does not entitle the individual to any remuneration;
  • is undertaken as a requirement of an education or training course; and
  • is approved. That is, the institution delivering the course that provides for the placement must be authorised to do so under a law or an administrative arrangement of the Commonwealth, a State or a Territory.

If a placement does not meet each of these requirements, it is not a vocational placement for the purposes of the FW Act and the individual may, depending on the facts and circumstances of the arrangement, be entitled to receive wages and other employment entitlements.

As outlined above, a vocational placement must be undertaken as a requirement of an education or training course. This generally requires an arrangement between:

  • the student;
  • their education institution; and
  • the host employer.

The course must be authorised, such as a university award course or for an accredited course offered by a registered training organisation.

The placement does not have to be a prerequisite for the student’s overall course of study or even be assessable in order to satisfy the vocational placement exemption. Rather, the internship must simply be a placement that is a requirement of the course, unit or subject.

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Existence of an employment relationship

As mentioned above, the primary purpose of an internship is for the individual to learn, observe and develop skills. As such, the benefit of an unpaid internship should predominantly flow to the individual rather than to the productivity of the business.

An individual is likely to be considered an employee if they are expected to perform work ordinarily carried out by an employee, as opposed to altruistically offering their services as a true ‘volunteer’. Bearing this in mind, some circumstances that might indicate an employment relationship are as follows:

  1. the individual is performing work to help with the ordinary operation of the business or organisation. For example, the business is charging clients for the work completed by the individual;
  2. the work performed by the individual is normally completed by paid employees, unless the productive activities are being completed as part of a learning experience, training or skill development; and/or
  3. the individual has an expectation that they will be paid for the work they are performing.

A good question for a business to ask itself is this – Are we expecting the intern to complete productive work? If the answer to this question is ‘yes’, it is likely that the individual would be considered an employee.

In addition, the longer an arrangement lasts and the more regular the hours of attendance, the more likely the arrangement will constitute an employment relationship.

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Payments to interns

Businesses should not pay wages to true interns. While minor reimbursements for things such as travel expenses or lunch are permitted, any remuneration that is calculated based on hours worked will be characterised as ‘wages’ and exclude the individual from the FW Act’s definition of ‘vocational placement’.

If they are being paid for the work being performed, the individual is likely to be rendered an employee for the purposes of the FW Act. In those circumstances the individual will be entitled to remuneration and other employee entitlements regardless of the individual’s title. This also means that the remuneration should be at an appropriate level and pay scale for the individual’s position.

Beware of labels

The act of innocently taking on an unpaid intern who does not meet the statutory requirements is likely to expose a business (and in some cases individuals) to liability for breaches of the FW Act. As we outline above, simply calling an individual an ‘intern’ is not enough. The title ‘intern’ does not legitimise underpayment of salary and entitlements.

Checklist

Before looking to engage an unpaid intern, a business should carefully consider whether the internship arrangement:

  • will satisfy the requirements of a vocational placement under the FW Act; and
  • will likely be considered an employment relationship, as outlined above.

Although each arrangement needs to be considered on its own merits, here is a quick checklist of the matters usually considered when determining whether an individual can be engaged as an unpaid intern because they are either undertaking a vocational placement and/or there is no employment relationship.

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Stay tuned for Part 2 of our series, where we outline some guidelines for setting up an unpaid intern arrangement that aims to mitigate the risks that can arise when engaging an unpaid intern.