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Unpaid Interns: Boon or Bane?
by Tad Crawford

The issue of unpaid interns has become a growing concern for many companies. A difficult economic environment has hastened the far greater use of such interns than in the past. Critics believe it is simply unfair if for-profit companies benefit from this unpaid labor. Proponents argue that the skills gained are educational in nature and as valuable as courses in college.

The issue is not only ethical, but legal as well. If an unpaid intern is considered an employee, then the failure to pay the minimum wage and comply with withholding requirements violates both federal and state laws. In April 2010, the U.S. Department of Labor issued Fact Sheet #71, “Internship Programs under the Fair Labor Standards Act (FLSA).” This clarified when interns may legally go unpaid and sets the stage for a crackdown on abuses seen
as widespread in the fields of communications, entertainment and politics among others.

The risk to firms in such areas as graphic design, photography, advertising and public relations can be substantial. These industries have already experienced how “misclassification” of an employee as an independent contractor can violate withholding requirements. This can lead to expenditures to pay for withholding that should have been collected but was not, stiff penalties for late payment, and burden of fees for attorneys. Similar liabilities face firms if unpaid interns are found to be employees.

Those in favor of unpaid internships argue that interns benefit tremendously from the experience. Not only are students and recent graduates eager to find such internships, but the companies that create the positions have to devote extra time to training and supervision. The interns not only gain skills but an important credential for use on their resumes as they seek paying employment. The proponents say that the crackdown by the Department of Labor is causing companies to cut back on creating unpaid internships because of uncertainty about how the law will be applied. This, in turn, is disadvantageous to the many people besieging the companies with entreaties to work for free.

The critics make the basic point that the interns are doing work, just like employees. If this isn’t the case and the interns are simply running errands and contending with the boredom of downtime, then the internships are of no value anyway. Moreover, some critics argue that only affluent families can afford to support their children during such unpaid internships, so the effect is to narrow the training opportunities for those who are not affluent. In addition, some people go from one unpaid internship to another, becoming embittered in the process. In addition, there is the risk that interns will fill positions that could have been taken by employees, thus decreasing employment opportunities.

Prior to issuing Fact Sheet #71, the Department of Labor had given guidelines in its Field Operations Handbook with respect to whether trainees and student-trainees can be considered not to be employees (in which case no wages would be required). For unpaid interns to be legal, there are six factors that must be met: 1) The training must be similar to that which would be given in a vocational school; 2) The training must be for the benefit of the students; 3) The students must not displace regular employees; 4) The employer must derive no immediate advantages from the activities of students; 5) The students must not be entitled to a job at the end of the training period; and 6) The employer and the student must understand that the student is not entitled to wages.     
The Fact Sheet clarified and explained certain of these criteria. With respect to the nature of the training, the Fact Sheet explains:

In general, the more an internship program is structured around a classroom or academic experience as opposed to the employer’s actual operations, the more likely the internship will be viewed as an extension of the individual’s educational experience (this often occurs where a college or university exercises oversight over the internship program and provides educational credit). The more the internship provides the individual with skills that can be used in multiple employment settings, as opposed to skills particular to one employer’s operation, the more likely the intern would be viewed as receiving training. 

In particular, it is important that the intern not do the routine work of the company on a regular basis and that the company not be dependent on the work of the intern. Crawford
Tad Crawford, the Legal/Business Affairs editor for Communication Arts, is the publisher for Allworth Press, and author of Legal Guide for the Visual Artist, the Business and Legal Forms series for creative professionals, The Secret Life of Money and his most recent book, The Money Mentor: A Tale of Finding Financial Freedom (Allworth Press).