Hiring Interns under the new Federal Overtime Laws and FLSA

By October 18, 2016Overtime Laws

Looking at Hiring Interns?

Interns can provide great value to businesses including new perspectives, an extra set of hands, and an opportunity to vet out new employees. Yet, hiring interns is more complicated than opening an unpaid job up for a college student. There are several things that businesses should be aware of and make decisions about when hiring interns. What is the purpose of the internship? Will it be paid or unpaid? What is the duration of the internship? Do you have time to mentor or supervise interns? What value will the interns gain from your company?

These are all questions that should be addressed. According to the Fair Labor Standards Act (FLSA) interns working in the for-profit world will typically be considered employees. This means that in order to have unpaid interns, a training test must be met. As employees, interns must be paid at least minimum wage and overtime hours. They are also subject to the other rules for regular employees under the FLSA and Department of Labor (DOL) rules.

 Hiring Interns as Unpaid

First let’s take a look at the requirements of hiring interns as unpaid interns under FLSA. Foremost, the intern should receive educational benefit that’s similar to the training the intern would get in an educational environment. Secondly, the internship experience is for the benefit of the intern (and not the employer). This means that the intern should receive a greater benefit than the employer. The employer should consider if they have the time to provide the training and education for the intern. The free-internships are not a means to free labor. In fact, the intern should not displace paid staff and should not replace the need to hire additional staff. At times the intern is likely to disrupt regular operations of the business and the employer should not receive any immediate benefit to hiring the free-intern.

Qualifying for Free Internships

For example, the employer should not receive the benefit of an additional employee to complete projects, additional hands to man the machines or other cost cutting benefits provided by “free labor”. The internship should be educational to the intern. Both parties should understand that the intern is not receiving any pay and that the intern is not guaranteed a job after the internship. In no way should the internship mirror a regular job at the company providing a free internship.

These requirements are in place to ensure that businesses do not gain free labor, which is against the FLSA guidelines. Free-internships, although not designed to save for-profit businesses money do have value for many business owners. First, interns can provide a fresh set of ideas and experience. They can help to bring more tech savvy ideas to the company. Yet, for many, offering an internship provides many business owners with an opportunity to mentor and make a difference. This valuable service provide altruistic benefits that, as stated above, can’t immediately give a benefit to the business.

There are many articles online and in publication that tout a large benefit of interns as being free or cheap labor. It is vital for companies to be wary of this approach. The FLSA is very clear in the need for unpaid internships to benefit the interns more than the employer. If the intern is being used primarily as cheap labor, then the employer could be in violation of the FLSA and could face stiff fines and penalties from the DOL.

Paid Interns: What’s different?

However, paid internships are a beloved way for many companies to vet out new employees while providing dual benefit to both the intern and the employer. By definition of the FLSA, paid interns are considered employees and are subject to all the legal benefits of employees. This includes minimum wage. Additionally, this means that if they are full-time interns, they are subject to employee benefits. Then, paid interns are also subject to the updates in the new overtime rules.

This means that interns that make under $47,476 are eligible for overtime pay. Overtime pay is defined at time and a half. Interns that do make above the salary threshold may be subject to an exempt status. However, it would be difficult to maintain both an intern status and a salary for exempt purposes. The employer who tries this tactic could be fined by the DOL. One reason for this is that internships must have a designated end period. Internships cannot extend into an undesignated future date. Typically internships last around 3-4 months, or the length of a school semester.

Employers should treat interns with the same consideration that they treat regular employees. Interns should not be discriminated upon by basis of race, creed, color, national origin, religion or sex. Internships don’t provide employers the opportunity to be discriminatory. Although, an intern can be hired for a lower wage than other employees in a similar role, they must still be paid at least minimum wage. Plus, when, or if, an intern is hired into the company, care should be taken to hire the intern as a regularly paid employee at the regular wages for that position. In this way, internships can provide an excellent way to vet potential employees. Studies by the National Association of Colleges and Employers have shown that 40% of interns hired permanently stay with a company over 5 years.  This is above regular employment statistics.

Benefits of InternsHiring interns compliance with the DOL

Even though most internships are not going to be “free labor” that doesn’t mean that hiring interns doesn’t have some incredible advantages. In addition to lowering employee turnover, interns also provide employers a great way to check out talent and train future employees. An employee hired after a 4 month internship is more likely to be qualified and to understand your corporate culture than someone applying off the street.

Plus, internships are a great way to promote your company’s identity on college campuses. Even small companies can benefit from internship programs because internships are often more appealing to college students when offered in a small company. This gives employers a chance to attract new talent and hire new employees after the internship without having to compete as much against larger companies in the job market.

Fair Compensation for Interns

In conclusion, if your company is looking to hire interns, there are a lot of benefits that can be had. However, don’t make the mistake of looking at interns as food in a sample tray in the supermarket. Interns should generally be paid fair compensation and be paid overtime unless you as the employer are not getting direct benefit from the internship.

It is vital to be aware of the need to pay and track intern hours is vital for every company. Making the mistake of offering vague or undefined internships can cost employers thousands of dollars in fines from the Department of Labor. Furthermore, internships that make under the salary threshold should have their hours tracked and should be paid overtime. Companies seeking to hire interns at a salary above the threshold should seek legal counsel before attempting this as it likely interferes with the FLSA definition of an internship.

About SwipeClock

SwipeClock has been helping companies track and maintain records for interns and regular employees since 1999. SwipeClock is a premier provider of time clock devices and workforce management tools designed to save businesses time and expenses. Contact a SwipeClock partner for more information (Or sign up to talk to one of our representatives).

Written by Annemaria Duran. Last updated October 18, 2016.

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