Media outlets have reported that Her Majesty's Revenue and Customs (HMRC) has initiated a crackdown on unpaid internships, including sending letters warning that workers must be paid the national minimum wage and setting up teams to tackle the problem.

Background

The background to the HMRC initiative is the Taylor Review of Modern Working Practices. Among other recommendations, the review advised the government to stamp out exploitative unpaid internships by improving the interpretation of the law and enforcement action taken by HMRC. The government's Good Work response confirmed that it would act on this by introducing new guidance and increasing targeted enforcement action (for further details please see "Government review to Taylor review – a damp squib?").

Unpaid workers

Employers are legally obliged to pay all workers – which may include interns – the minimum wage (which for this update includes the national living wage). Distinguishing between workers and others can be problematic and depends on a number of factors excluding the name used. Calling someone an unpaid intern, an intern or a volunteer will not remove him or her from the scope of the minimum wage provisions if he or she is legally a worker.

To be a 'worker', an individual must have entered into a contract to perform work or services personally for someone else. This means that there must be a contract – an agreement (whether express or implied, written or oral) under which the worker must turn up and work.

'Work shadowing' (ie, where the individual simply observes and does not perform work) does not qualify for the minimum wage.

In order for a contract to exist, there must be 'mutuality of obligation', meaning that both the individual and the employer must have an obligation of some kind. The employer's obligation is to provide work; the worker's obligation is to do the work. Some interns (eg, genuine volunteers) will be free to come and go as they please; therefore, they are not workers and are not entitled to the minimum wage.

Although genuine volunteers are unlikely to be workers, there is also a special category of voluntary worker which is not entitled to the minimum wage. This applies only to those working for charities and voluntary organisations who:

  • are not paid (other than the reimbursement of expenses incurred); and
  • receive no benefits in kind (other than reasonable subsistence or accommodation).

Providing more training than is necessary to enable the individual to perform the volunteer work may be considered a benefit in kind and could remove the individual from the scope of this exception.

Further specific exemptions apply for school children and students. Workers of compulsory school age are not entitled to the minimum wage. Neither are students undertaking work experience placements of no more than one year as part of a UK-based higher or further education course of study.

Penalties

Organisations that fail to pay the minimum wage to interns who are workers may be penalised and the individuals could bring claims for back pay. More seriously, an employer that deliberately fails to pay the minimum wage could be liable to a criminal penalty. However, the government admits that it is yet to prosecute in respect of an unpaid internship.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.

For further information on this topic please contact James Davies or Bethan Carney at Lewis Silkin by telephone (+44 20 7074 8000?) or email (james.davies@lewissilkin.com or bethan.carney@lewissilkin.com). The Lewis Silkin website can be accessed at www.lewissilkin.com.