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Navigating unpaid internships and the Fair Labor Standards Act

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Unpaid internships could mean the difference between a job and a career for recent graduates, but there are certain factors employers must keep in mind when offering these positions to avoid Fair Labor Standards Act violations.

There are six factors the U.S. Department of Labor suggests, and if these factors are disregarded, the intern could be classified as an employee and must be paid, explained Katherine Capito, a Dinsmore & Shohl attorney practicing in Charleston.

"The general purpose is not to prevent employers from providing internships or to penalize them," Capito said. "When an employer is looking at how to handle the program, they should look at the Fair Labor Standards Act."

The first factor the U.S. Department of Labor suggests is that interns should be given training in an educational environment.

"Essentially, it has to be training or a work program rather than just doing work for the employer," Capito said. "They can be doing some of the work but essentially it has to be a classroom setting where you're teaching them how to do their work or how to operate the business."

Yet, the position must benefit the intern, not the employer. This can be a tricky line for employers, Capito said.

"It's undoubted that getting an internship is beneficial for interns. Many want to work for free," she said, later adding, "You can't be there copying if you're in a marketing internship. It really has to be teaching and helping them rather than helping the employer," she said.

But businesses shouldn't equate hiring an intern to replacing a full-time employee.

"Make sure you are not using the intern as an employee and you're not hiring other employees because they can have an intern do the work for free," Capito said.

The fourth element the Department of Labor provides is internship training will not provide an immediate advantage to the employer. In fact, Capito said sometimes it can provide quite the opposite.  

"Operations may actually be impeded," she said. "The training may actually be a hassle to employer rather than helping them."

The last two elements, Capito explained, were that the intern is not entitled to a job at the conclusion of the internship and employers must make clear at the beginning that the person will not be paid.

Capito said it can be a tricky line for businesses to follow and meet the six-factor test.

"It is difficult to say this is an internship or this is not an internship. It's difficult to understand what the duties are," she said.

There are exceptions to the rule. Capito explained the act excludes people working as volunteers for nonprofits.

As for paid internships, Capito said these positions would fall under the Fair Labor Standards Act and therefore interns must be paid minimum wage.

 "You either have to pay them minimum wage or nothing at all," she said. "If it was paid, they would look at state law and federal law. Whichever is higher, they would have to pay."