STRUCTURING AN UNPAID INTERNSHIP

The hiring season is commencing for college and high school students, who are eager to build their resumes with practical work experience. But must students be paid for these work experiences, and at what rate? Does it matter if their school provides them with academic credit? Let’s consider Midsize Company, where three managers wish to retain students as summer interns.

Harold wants to offer five summer internships, with a stipend of $1000 each. The interns would help alleviate the department’s data entry backlog, under the guidance of the full-time staff. They would attend guest lectures from employees in other departments and would have a one-day shadowing opportunity with a member of Harold’s management team.

Bari wants to offer one student from her alma mater an unpaid summer internship. This intern would shadow Bari and members of her team on a rotational basis. Bari has also scheduled her peers in other functions to speak with the intern about their respective roles. The student would receive college credit, provided he/she completes a research project, and Bari has written a hypothetical fact pattern that she will have the student independently research over the course of the summer.

Salina seeks to place her son and his friend in a summer internship to satisfy a practicum requirement for high school seniors. Salina is flexible as to how the company will use their services and whether they will be paid, but the high school requires them to write a paper.

Legal Requirements

Under federal law, to be classified as an “internship,” the work experience must meet the following six factors:
1. It must offer training similar to that which would be provided in an educational environment;
2. It must be primarily for the benefit of the intern;
3. It must not displace regular employees, and must be closely supervised by existing staff;
4. It must provide the business with no immediate advantage, and it may even impede the business’ operations;
5. It must not include a job guarantee at the conclusion of the internship; and
6. The intern must understand that he/she is not entitled to wages for the time spent in the internship.

New York and New Jersey add further criteria, which center around clear notice of the terms of the program, a distinct admissions process, and generalized training that is not distinct to the employer.

Let’s Apply Them

Harold can proceed with his internship program only if he increases his budget to at least pay minimum wage. Most fatal to Harold’s proposal is that the program would provide a direct benefit to Midsize Company, as the interns would be performing the actual work of regular employees. The guest speaker lunches and shadowing opportunities are wonderful, but they do not cure the overall program, nor does the fact that a participating student may receive academic credit from his or her college.

Bari’s internship program potentially satisfies the federal test. For clarity, Bari should detail, in writing, the terms of the internship (and that it is unpaid), tasks to be observed and performed, resources that will be made available, and the skills that the intern will gain.

Salina’s proposal is too vague. Salina needs to structure a program similar to that proposed by Bari, including a plan for the teens to satisfy the high school’s research paper requirement. Alternatively, Midsize Company could hire the teens at minimum wage and then assign them as appropriate to their skillset. If they are in New York, their compensation could be modestly offset by that state’s internship tax credit (see box, pg. 4), but the work experience might not meet the high school’s practicum requirement.

* In my years of legal practice, there are certain recurring issues that cross a range of industries and circumstances. This column presents a hypothetical factual situation as a vehicle to substantively review these recurring legal and employee relations issues.