Are Unpaid Internships Legal? An Employer's Guide

Although unpaid internships give students and recent college graduates real-world job training for a future full-time job, businesses can’t use interns as free labor. Federal labor laws require payment unless the program is for the primary benefit of the intern. Standards for unpaid interns are strict. The Fair Labor Standards Act (FLSA) determines whether you must pay your intern an entry-level wage.

What Is the Primary Beneficiary Test for Unpaid Internships?

The U.S. Department of Labor (DOL) enforces federal labor laws. State laws about unpaid internship programs may differ from federal laws. The DOL‘s Wage and Hour Division uses a “primary beneficiary” test to differentiate between a regular employee and an unpaid intern. Seven factors determine if a position benefits the student or the employer. For an unpaid internship to be legal, the employer must create the internship so that:

• The intern must understand that the work relationship is unpaid. The intern may be working for school credit, not pay.
• The internship resembles training they would get in an educational environment. The internship should contain elements related to the student’s schoolwork.
• The internship is part of the intern’s coursework, for which they may get academic credit. Ideally, the intern must report weekly to a staff advisor and instructor to describe their progress.
• The internship is part of the academic calendar, allowing them to meet other academic commitments. The employer and intern recognize that the intern will leave on a specific date.
• The internship’s length aligns with the beneficial learning period. The internship should end if the employer does not have enough work for the intern.
• The intern shadows existing staff while getting educational benefits. The intern’s work complements but does not displace the work of paid employees.
• Both parties understand there is no job guarantee after the internship. Sometimes, hiring an intern after an internship means the “internship” becomes an orientation, and employers may have to pay the intern back for the period.

Check with your state’s Department of Labor, as some states have stricter requirements for unpaid interns than federal law. The following chart breaks down what employers should and shouldn’t do with unpaid internships.

What’s the Difference Between a Student Learner and an Intern?

Employers registering with the U.S. Department of Labor may pay workers at least 16 years old 75% of the applicable minimum wage. These “student-learners” must get instruction in an accredited institution and work part-time. Employers can apply at the DOL Wage and Hours Division for authorization to hire a student-learner below the minimum wage.

Student-learners are not paid interns. A student-learner works part-time on a trial basis as part of a vocational training program. For instance, a student in a welding school at a community college could become a student-learner with a local ironworker’s shop. The student-learner would gain valuable training, and the shop owner would have the student for a trial period without displacing any existing workers.

How To Craft a Successful Internship Program

Small business owners may not have considered developing an internship program. Government agencies, corporations, and nonprofit organizations depend on them. Even small businesses can have workable programs. Small companies can work with community colleges rather than major universities to develop their plans.

Educational institutions and corporate human resources professionals agree that every employer can take important steps to create a helpful internship program. These include:

• Set a clear work experience goal: Interns look for specific training during internships. Your program should also give them job-market experience.
• Work with the educational facility to design the intern’s work and educational experience: An internship is part class and part job training. The intern may receive college credit, so they should learn more than how to deliver coffee and make copies.
• Let interns shadow employees in other areas of the company: Interns should learn about all aspects of the business, not just one job. If you have the time, let them observe workers in other parts of your company.

An intern program can serve as a pipeline for future employees who already understand how your business functions.

Talk to a Lawyer To Develop an Unpaid Internship Program

If your company plans to hire interns, ensure you understand your state and federal requirements. Employers who violate the law can face stiff penalties. Contact a local employment law attorney to ensure you handle internships properly.