Benefits and Risks of Unpaid Internships for Your Family Business

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Notwithstanding popular misconceptions, internships can (and should) involve more than memorizing coffee orders and getting familiar with the copy machine. This article explores some of the advantages to engaging interns and discusses some of the important legal considerations when doing so.

Advantages of Engaging Interns

Interns can inject fresh perspective and new insight into a business. Most interns are either young professionals just launching their careers or those with an established work history who have chosen to make a career change. Both bring experiences and world views with them that, if properly utilized, can provide significant benefits to both the interns and the company that engages them.

Paid interns can also provide labor at a price point lower than what the market might otherwise call for. Companies that are experiencing economic difficulty might consider bringing on interns as a way to get work done without breaking the bank.

When businesses seek to fill a full-time position, many find interviews to be an imprecise instrument. Internships provide businesses with a way to engage in an extended vetting process whereby they are able to more accurately assess the quality of an individual's work while simultaneously getting to know them on a personal level.

Lastly, bringing on interns can be beneficial to society writ large. When properly administered, internships provide businesses a way to give back. The experience and resume boost that young professionals receive in connection with participating in an internship can alter their career trajectory and life path for the better.

Legal Considerations for Unpaid Interns

Family businesses considering bringing on unpaid interns should carefully consider attendant legal implications. Administering an internship program in a manner inconsistent with applicable wage-and-hour laws (state and/or federal) is likely to be very expensive for a business in the long run.

Under the federal Fair Labor Standards Act (FLSA), a business that does not pay its employees at least the applicable minimum wage can be subject to weighty financial penalties that can include back pay with interest, liquidated damages equal to unpaid earnings, and attorney's fees. The FLSA empowers not only the U.S. Department of Labor (DOL) to take action against employers for wage-and-hour violations under the statute, but also allows aggrieved employees to hire their own attorney and bring suit on behalf of themselves and other similarly situated employees.

Fortunately, the DOL has issued guidance stating the circumstances under which a business may properly engage an unpaid intern rather than an employee. In this context, the DOL uses the seven factor "primary beneficiary" test to determine whether a worker is an employee or an intern. This test is a flexible "totality of the circumstances" assessment where rather than relying on any single factor as determinative, the seven factors are analyzed to determine whether a worker is an employee or an intern.

In short, the primary beneficiary test is designed to determine whether the intern or the hosting business is the primary beneficiary of the internship. The seven factors of the primary beneficiary test are:

  1. The extent to which the parties, both the intern and the employer, clearly understand that there is no expectation of compensation;
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions;
  3. The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit;
  4. The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar;
  5. The extent to which the internship's duration is limited to the period in which the internship provides the intern with beneficial learning;
  6. The extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern; and
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Given the flexible and fact-bound nature of the primary beneficiary test, it is important to consult qualified legal counsel about the specifics of your company's situation before bringing on unpaid interns.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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