Unpaid Interns May Be Too Expensive

July 1, 2013; U.S. News & World Report, “On Careers”

Summer interns: We love them and we hate them. But do we have to pay them? That is a question much debated. Most recently, that debate has been taken up by a federal judge in Manhattan, who ruled in June that Fox Searchlight had broken minimum wage laws using unpaid interns on the set of Black Swan. This ruling, which may or may not be overturned upon appeal, signals that the legal and financial risk of unpaid interns may be greater than previously considered.

The timing is curious. Just a year ago, for-profit internships were said to be expanding, and many college graduates considered themselves lucky to land an unpaid internship. Some interns had an enriching experience, while others found themselves doing only grunt work and considered it a waste of time.

Will we see the tide of interns slow now that the economy is improving? Will companies respond to this ruling by becoming more cautious? How can nonprofits avoid costly legal battles?

Nonprofits have long relied on interns. Many nonprofits are buoyed by the often-annual influx of interns’ time, energy, and new ideas. For the intern, the opportunity can mean job experience, network opportunities, professional references, and something to put on the resume—especially important during the recent period of high unemployment. The intern hopefully remains in the sector and becomes a better employee as a result of the internship. This mutually beneficial relationship is often considered an economically savvy move for both parties. But when considering the ramifications of decisions like the one made last month in Manhattan, that unpaid intern could quickly become too expensive.

What determines whether an internship is paid or unpaid? The Fair Labor Standards Act (FLSA) is the legislation to consider. The FLSA requires employers to provide at least minimum wage and overtime compensation. It applies to employees and to anyone it interprets as an employee, including most interns.

The act does allow some interns to be unpaid if they meet all of the following criteria:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
The internship experience is for the benefit of the intern;
The intern does not displace regular employees, but works under close supervision of existing staff;
The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;
The intern is not necessarily entitled to a job at the conclusion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The fourth line states the employer must derive no immediate benefit from the intern. This indicates that if an intern helps with a fundraising event or special program, they are no longer considered an intern and must be compensated according to the FLSA. This can put an organization in quite a bind.

Luckily for nonprofits, there is another option. For-profits must ask only if the intern is an employee: yes or no. For nonprofits, the question is broader: Is this intern an employee or a volunteer? If the intern is a volunteer—a fact that should be documented in writing—then the rules are entirely different. Either way, nonprofits need to be careful. The Council on Nonprofits offers a FAQ page for those wanting to ensure compliance. Blue Avocado is also a good source for information.

If the sector is sufficiently cautious, nonprofits may be able to watch from the sidelines as for-profits battle the paid/unpaid internship debate in the courts.—Jennifer Amanda Jones