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Small businesses may be tempted by the vision of shining young students eagerly spending a summer churning out the mundane tasks no one else in the office wants to do – and for free, no less. Peril lurks beneath the surface, however. It is rare that a for-profit employer can offer an unpaid internship that complies with the law, and both the federal and state agencies have stepped up enforcement action. If you are determined to offer internships, you can take three important steps to ensure that the program benefits both the business and the interns.

Six Department of Labor Guidelines

The Fair Labor Standards Act is generally designed to prevent exploitation of employees. To further this goal, the DOL has set out six guidelines for unpaid internships.

  • The training should be similar to what would be provided in a vocational school or educational institution.
  • The training must be for the benefit of the intern.
  • Interns should not displace regular employees, but work under their close observation.
  • The employer should derive no immediate advantage from the intern (and on occasion its operations may actually be impeded).
  • The intern should not necessarily be entitled to a job at the conclusion of the internship.  An employer should never offer an unpaid probationary employment period disguised as an internship.
  • Both the employer and the intern must understand whether the internship is unpaid.

A small business that does not comply with these requirements may face liability for wages, overtime, benefits, payroll taxes and income taxes.  If an unpaid intern is hurt on the job and would otherwise qualify for workers’ compensation, the employer may face additional claims.  Given the risks, why would any sane enterprise offer internships?

Internships Can Benefit Both Businesses and Interns

For employers, internships may be an opportunity to discover new talent.  These programs may also help with employee retention.  Data suggests that employees who come through internship programs are more likely to stay with an employer.  Recruiting through a college or university is relatively inexpensive.  If students find the experience valuable, word of mouth can do wonders.  It’s a way of supporting students, who may bring fresh perspectives and talents to a small business, and it’s a way to give back to the community.  Interns, for their part, may have the opportunity to integrate theory and practice in an academic discipline, develop business skills, acquire a more realistic view of a profession and begin to build a professional network.  There is considerable potential for a well-designed program.

How to do It Right

Perhaps the same person who makes decisions about charitable giving should make decisions about internships, using the same criteria.  Think of it as a form of indirect marketing, rather than a source of cheap labor.  Just as your company may want to be known for supporting a local food bank, you may want to hire student interns – something along the lines of one start-up giving a hand to another.

Here are three important things you can do to protect you enterprise while getting the benefit of those fresh new faces:

  • Pay your interns minimum wage, including overtime for hours greater than 40 per week, or
  • Collaborate with an academic institution to develop a program for which college credit may be given.
  • In any event, develop a written plan to be shared with the intern and academic institution demonstrating how the program meets DOL criteria.  It should be clear that the internship is intended as an educational experience with goals, objectives and a schedule of activities, much like an academic syllabus. It must clearly state whether it is unpaid.  Consider having interns sign an acknowledgement that they have received this disclosure statement, much as you would do with an employee handbook.

Internships are a risky proposition outside of non-profit or governmental institutions.  Nonetheless, in the face of a frightening job market, students will continue to seek them as necessary bit of resume building. They’re not without benefits for both parties, but should be carefully designed to limit potential liability.

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