Internships: Paid or Unpaid? That is the Question

Interns play a vital role in many organizations and offer support to staff and reinvigorate organizational creativity through the introduction of new talent and ideas. Often, organizations provide an educational experience, giving interns training and experience in lieu of financial compensation. While this arrangement can be beneficial to both the employer and the intern, it can be challenging to ensure unpaid internships comply with local, state, and federal laws regarding labor and compensation.

A recent federal court ruling against Fox Searchlight has brought the debate over compensation for interns back into the limelight. In 2018, Fox Searchlight was found in violation of multiple federal minimum wage laws regarding their unpaid interns. Despite their collaboration with the university to offer college credit, the organization was found to directly and immediately benefit from labor provided by interns, violating the standards set by the Department of Labor (DOL) for unpaid interns.

To help clarify their expectations for organizations offering unpaid internships the DOL’s Wage and Hour Division created a seven-factor test. This test is meant to assist organizations in determining whether interns should be paid. The test outlines seven expectations for an unpaid internship, and while the DOL does not expect each factor to be entirely met, these factors are collectively considered in the case of an investigation or lawsuit. The seven-factor test is meant to provide general guidelines, making it easier for the employer to ensure that the primary beneficiary of an unpaid internship is, in fact, the intern. While organizations can benefit from the support offered by an intern, the primary goal should not be free labor.

While the factors seem simple enough, financial experts say that it is rare that a for-profit organization meets enough of the criteria to offer an unpaid internship. Their advice is simply ‘better safe than sorry,’ and that offering paid internships ensures your organization is compliant, while still able to benefit from and provide experience to interns. In addition, experts suggest knowing state and local legislation regarding internships, labor, and compensation. While this information can be a challenge to find at the state and local level, it is important to ensure your organization is compliant and treating all employees, and interns, legally and fairly.

Compensating interns can be costly and out of reach for some organizations, especially small organizations. If you choose to hire unpaid interns, there are a few rules to follow in addition to compliance at the local, state, and federal level. Firstly, ensure that everything is documented and clearly communicated. The intern, the organization, and the school should all be on the same page as to what is being offered: what work is expected, mentorship offered, training and education, experience, etc. This should be communicated verbally and in writing.

Remember that providing lunch or travel stipend is not considered compensation. While these can be nice perks to offer your intern, keep in mind that you will still need to comply with all laws regarding unpaid internships. Another way to make your unpaid internship attractive, competitive, and compliant is to bulk up the opportunities for mentorship, networking, and education. In addition to hands-on experience, offer your interns direct opportunities to learn more about your organization and the industry. Pair them with a staff member who can help them to gain a new skill, create connections within the industry, or provide the opportunity to grow through their experience with your organization. Have a plan for your interns that focuses on professional growth for the intern, following the guidelines of their college curriculum while still offering them the opportunity to support your organization.

Internships can be an exceptional opportunity to provide growth and education for your organization and your interns. Whether you ultimately decide to go with a paid or unpaid internship, coming to the table with a clear plan and expectations will allow it to move more smoothly in a way that is beneficial to every party involved. As always, remember to ensure compliance with local, state, and federal laws and don’t forget the human factor in your workforce. Interns join organizations they believe will provide professional experience and growth. Ultimately, your goal should be to provide them with the education and experience to make them a better future employee.

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