Intern Hiring – It’s Legally Complicated

Navigating the intern landscape is challenging for even the most seasoned hiring expert. New regulations and increased scrutiny on unpaid work have resulted in employers being more in the dark than ever on what they can do and what they must do while hiring interns. We have worked closely with our legal partners at Orrick to demystify laws for intern hiring by answering the five most frequently asked questions, summarized below.

Do businesses need to pay their interns?
Let’s start with for-profit businesses – the Fair Labor Standards Act (FLSA) along with state level regulations dictate employee pay such as minimum wage, overtime pay, paid leave etc. Under these laws, employees must be paid fairly for their work, but is an intern an employee? This boils down to who benefits more from the internship – the student or the employer. For someone to qualify as an intern, the employer needs to prove that the intern is benefiting (through training, learning experiences, etc) more than the company (measured in work output, monetary gain, etc). Below are some guidelines to help employers determine this.

First, if an employer answers ‘yes’ to any of the below questions, the student qualifies as an employee, and must be paid accordingly.

  • Is there an expectation of compensation and/or full-time offer at the end?
  • Is the intern performing tasks that support business and/or operations?
  • Is the intern doing the same work as other, paid employees?
  • Next, while these questions are not directly tied to being an intern or employee, they’re important to think through as well.

  • Is there hands-on training provided, similar to that of a university? Robust training and/or shadowing is mandatory for unpaid internships. Remember, more than half of the intern’s time needs to be spent on activities that benefit the intern more than the company.
  • Is the internship program tied to a formal, for-credit educational program? It is generally required that an intern receive credit for the internship from an educational institution in order to be considered a valid unpaid intern.
  • Is the internship for a predetermined limited duration? Unpaid internships must be for a limited, predetermined amount of time.
  • This is all summed up nicely in the 6-Point Test (laid out by the FLSA). An employer must comply with all six points for a student to truly be considered and intern, thus allowing an employer to take them on as an unpaid intern.

    1) The internship is similar to training given in an educational environment
    2) The internship experience is for the benefit of the intern
    3) The intern does not displace regular employees
    4) The employer derives no immediate advantage from the activities of the intern
    5) The intern is not entitled to a job at the end of the internship
    6) The intern and employer understand that the intern is not entitled to wages

    What about non-profits, where different rules apply? Per the Department of Labor, a volunteer at a public sector non-profit can be unpaid. An intern is defined as a volunteer if they give their time freely to the organization and do not expect compensation. The bottomline is that as long as expectations are communicated and set appropriately at the onset of the internship, nonprofits are generally allowed to employ unpaid interns.

    What are the max number of hours an intern can work?
    In financial services, I saw students pull 80+ hour weeks. When interns are working long hours, it is crucial that they’re getting compensated appropriately. While there isn’t a set number of hours an intern over the age of 18 can work per week or over the course of their internship, employers must pay non-exempt employees time and a half for hours exceeding 40.

    Can an intern classify as an independent contractor?
    Likely no. Independent contractors are in business for themselves and typically have economic independence. While independent contractors are not employees and thus not subject to FLSA provisions, a student – by nature of being a student occupationally – is not in business for themselves.

    What is required of an employer for an intern to receive school credit?
    Once an intern discloses school credit requirements to an employer, it is the employer’s responsibility to ensure the intern can meet those requirements. These requirements will vary from school to school, but an employer should ensure they know what is expected from the university, and provide the training and experiences necessary. For unpaid interns in the for-profit setting, it is a best practice to require the intern provide proof of enrollment as well.

    Are students allowed to work for multiple companies at once?
    Yes, with a few stipulations. While an intern may participate in multiple internships at once, an employer has the right to ensure their proprietary, confidential and trade secret information is not shared with competitive organizations. Further, an intern must satisfy the expectations set forth by the company, even if they’re working at multiple companies at once.

    Looking for more information? I highly recommend this white paper on laws for intern hiring, created by our team in partnership with the law firm of Orrick, Herrington & Sutcliffe LLP. Good luck to you and your students as we head into intern season, and please come back soon for more advice, insights and trends.

    Liane Hajduch, Head of University Partnerships

    Liane has over 5 years of campus recruitment management experience - she hired, trained, mentored and developed hundreds of top candidates in both technology (Venmo/PayPal) and financial services (RBC Capital Markets, Moelis & Company). At WayUp, she partners with career services professionals across the nation to work together to help students find meaningful jobs and internships.