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Hiring Unpaid Interns - Risks & Paperwork

Steven Halpern's Profile

My company is considering hiring unpaid interns. What are the potential and actual risks of doing so, and what internal and external (Federal / State / Local) documents should be or required to be filed

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Start with ETHICAL and REPUTATIONAL risks. Is that really the way you want to do business and treat people or potential employees? Is that the culture you want to cultivate? When you say "unpaid" does it include allowances?

By the way, "hiring" unpaid interns is an oxymoron.

I will end with a statement I said on a prior discussion....."Just because they are willing does NOT mean you should do it."

Something to think about.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Legal:

Pay them minimum wage

OR

Give them a real job (not a gopher job) and they have to get credit given by an accredited high school or college.

Richard Archer
Title: Director - Governance & Risk Advisory
Company: Hill International
(Director - Governance & Risk Advisory, Hill International) |

I read about more and more companies, even big ones, trying this approach to get work done without having to pay people, but it is a minefield and can get your company into a lot of trouble, including both labor law violations and failure to withhold and remit payroll taxes for interns that should have been paid. According to the US Dept of Labor, there are 6 criteria for qualifying unpaid interns:

1.The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2.The internship experience is for the benefit of the intern;
3.The intern does not displace regular employees, but works under close supervision of existing staff;
4.The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5.The intern is not necessarily entitled to a job at the conclusion of the internship; and
6.The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If the company fails to meet even one of the 6, it could open itself up to law suits, back pay, and back taxes. The Dept of Labor website specifically states: "If an employer uses interns as substitutes for regular workers or to augment its existing workforce during specific time periods, these interns should be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek. If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled compensation under the FLSA."

So, if your company is considering the internships to provide educational opportunities that are for the personal benefit of the interns, go for it. If the company just wants some work done by avoiding hiring more staff, probably best to avoid the idea.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

As a post script to my earlier comment,

Tech companies pay their interns NOT because they can afford them, but because IT IS THE RIGHT THING TO DO! They have NO shortage of people willing to intern for them (even pay the company if need be) for free. The average pay for interns in tech companies is anywhere from $5k to $7k a month.

This is one of the "innocent" corporate practices that we have been accustomed to that we need to REEXAMINE.

Again, (rephrased) just because you can does NOT mean you should.

David Smith
Title: Manager
Company: Private
(Manager, Private) |

Emerson, I agree that just because one can do something does not mean one should do something, but for different reasons than you cite in this case.

Why do you ascribe tech company motivation to goodness?

What actual evidence do you have that tech companies are acting out of a an all- caps-exclaimation-point-added-for-emphasis motivation of "IT IS THE RIGHT THING TO DO!?"

What makes tech companies so good and special?

I think it's far more likely that they have the working capital to afford it, are keen on avoiding risks, put interns to tasks that deliver value and chalk it up as a cost of recruiting in a hyper competitive environment. Today's Stanford student $6k intern is tomorrow's employee... all self-interest, which is fine, but distinctly different.

They're not an entire industry of better people with bigger hearts feeling greater pity for the hapless interns of the world. And now everyone else, with different challenges, should follow their example of goodness? I mean, come on, snap out of it!

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

David,

One, I am NOT singling out tech companies (although it may have appeared that way) and NOT holding them to high esteem. I just used them as an example....and to be clear....NOT ALL tech companies do it.

Two, tech companies have a bee line of WILLING people that will work for them for free and as I said, even pay the company for the opportunity. If they have capital and they are "savvy" at using said capital, can you think of another reason why they still pay the interns? Heck, they can even use this as a another revenue stream if they so choose.

Three, no matter what the tech company stage, "interns" still get something (financially) out of their "work". Even an underfunded startup will "pay" (in some form or another) their interns.

Four, your reasoning about todays $6k student is tomorrow's employee is flawed as it is NOT a guarantee. I acknowledge the fact that it is a way of screening and finding the right future employees. However, what does it have to do with paying them? In fact, the opposite point can be argued...why should I pay you interns if you can be an employee?

And to your last point....."And now everyone else, with different challenges, should follow their example of goodness?".... If you have a criteria with who's "goodness" to follow....then I think you have a different interpretation of what goodness means. Besides, I never said nor implied that everyone SHOULD follow. It was an example to support the argument.

David Smith
Title: Manager
Company: Private
(Manager, Private) |

Oh, okay, I thought you said...

"Tech companies pay their interns NOT because they can afford them, but because IT IS THE RIGHT THING TO DO!"

You can see how one might have thought you were applauding tech companies for their motivation to DO THE RIGHT THING" and therefor holding them out as an example for others to follow.

Never mind then.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

For what it is worth...Google's motto is "Don't be evil"

David Smith
Title: Manager
Company: Private
(Manager, Private) |

Agreed, that tells you everything you need to know right there.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Yes it does!

Alphabet replaces Google's 'Don't be evil' with 'DO THE RIGHT THING' (emphasis mine)

It is best to mention that Alphabet comprise of over 50 technology companies.

http://www.engadget.com/2015/10/02/alphabet-do-the-right-thing/

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

At Apple... (Business Conduct Policy)

"As Dr. Martin Luther King once said, the time is always right to do what's right. At Apple, WE DO THE RIGHT THING (emphasis mine). Even when it's not easy. If you see something that doesn't meet our standards, speak up. Whether it's a quality issue or a business practice, if it affects Apple's integrity, we need to know about it.

http://www.macrumors.com/2013/11/20/tim-cook-to-apple-employees-in-new-video-at-apple-we-do-the-right-thing/

Ross Anderson, CPA, MBA
Title: Controller
Company: TFS Capital
(Controller, TFS Capital) |

Unpaid interns are technically supposed to be compensated by the experience they gain to the point where they become a net cost and get more experience than what their work is worth. I actually hope I am in a position where we can afford to have one of my sons take an unpaid internship, as they can be great experience. However, oftentimes companies abuse unpaid interns and ask them to do mundane tasks that otherwise would be done by admin employees. The risk is that they then complain to the government and you get fined or sued.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

And they do complain.... and they complain because they believe they are entitled to be the CEO having never worked before.

We fail to teach of college students about business, what or where they can learn the most about not only the particular company they are in, but business in general.

One of the best ways (at least at the start) is to do filing. Look what you get to read, contracts, purchase orders, invoices, who the customers are, who the vendors are, etc., etc. You learn what types of standard clauses are in contracts, you learn what is good or bad about the presentation of those invoices you've looked at.

The list and varied information goes on and on..... But you tell an intern to file and they get insulted.... Sometimes a little communication on the import goes a long way in stopping them from complaining...

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

Don't do it. Paying minimum wage is the norm now. Federal regs as detailed by a previous poster are defined, and state laws are sometimes worse. Some good work done, especially tech coders and testers. But not high value as the on boarding, training, support and temporary nature of an intern are very high costs to the company that are rarely quantified by accounting.

Charles Smith
Title: Managing Partner
Company: Pegasus Intellectual Capital Solutions
(Managing Partner, Pegasus Intellectual Capital Solutions) |

We coach interns. We do this to help them get a job after college which is much more difficult than when I was in school. I taught at the university level, and structure our internships much like a course would be made up. We hold weekly lectures and coach our interns to try to let them see the inner workings of an investment bank. Our field is notorious for abusing interns and employees, but it is wrong to say companies shouldn't create internships. We do not treat them like employees, but then we don't treat employees like other investment banks. They key is, is the internship for the benefit of the intern?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I agree Charles. I have worked with some University programs that actually had me writing status reports.

Does an intern (non-paid) get coffee? Sure (so do I), but the value is in giving them a real project (part of the DOL requirements) and using it as an educational expansion to their knowledge (even if its filing as I described before).

Working with a well structure college program is a great way to develop such a intern job and a stream of new interns and hopefully potential employees.

Didier Jupillat
Title: CFO
Company: Atlantic.net
(CFO, Atlantic.net) |

It's always been so strange to me, as a European, to see how unpaid internships seem to be part of the corporate culture here in the US, something that would never even cross the mind of a European executive nowadays -- nor would it be allowed by any DOL! Thinking the internship could be only for the benefit of the intern is a fallacy, and a patronizing attitude that (to me) is insulting and will certainly not bring the best out of the intern!

Of course they get trained and coached for their benefit, and it will take somebody's precious time to do that, but it will also benefit of the company, because what interns (apart from the few who don't care) wouldn't want to help if they can? I've hired a few interns along my career, and I was never disappointed by their willingness to be useful in one way or another, even if the task was a boring one like filing or updating the customers and vendors data in the system.

The truth is, if you treat an intern right, they will treat you right as well, and it will benefit the company because you, as their supervisor and coach, did the right thing. And that applies not only to interns but to all employees! The coaching and nurturing has to happen at all levels to make the situation a win-win for everybody.

So please, treat your interns right just like any other employee: pay them, coach them, let them learn from their mistakes, praise them for what they do well and show then what they can do better, reward them with increasing responsibilities (at their level), and you will be amazed at how grateful they will feel, and so very happy they were able to help and be part of the action.

Tyler Tracy
Title: Vice President Finance
Company: Novasyte LLC
(Vice President Finance, Novasyte LLC) |

You can do unpaid internships if they receive college credits and follows a bunch of other rules. I would look up the laws in your state. In California, its a lot of work to get unpaid interns and its risky. Internships are supposed to be for the benefit of the intern, not the employer so that is where you should start when you are determining whether you should or shouldn't pay them. My company was started with the use of unpaid interns however, we now pay them.

Steven Halpern
Title: Senior Financial Controller
Company: Maclaren Services, Inc
(Senior Financial Controller, Maclaren Services, Inc) |

Thanks!

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

All people should be paid for their work. Not sure who started the "unpaid" intern scam, but they should be ashamed. It is unethical and immoral. (Yes, I have strong feelings about this.) This is the type of thing that gives Capitalism a bad name.

Won't be long and it will be against the law or be too expensive to continue. http://unpaidinternslawsuit.com/ ..... Which is a good thing.

Also need to read this from the DOL. http://www.dol.gov/whd/regs/compliance/whdfs71.pdf

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Again I say....

It is a sad state when our consideration becomes what is legal (what can I get away with) instead of what's the right thing to do!

Steven Halpern
Title: Senior Financial Controller
Company: Maclaren Services, Inc
(Senior Financial Controller, Maclaren Services, Inc) |

I agree. Thanks!

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