Rules for Unpaid Interns and Volunteers

Rules for Unpaid Interns and VolunteerBy Mary E. Drobka and Joe Wallin

We’ve been getting a lot of calls recently about interns and “volunteers.”  A lot of folks want to know how to have people work for them for free.  We have gotten to the point of saying:

“Outside the world of charities or government agencies, there is no sure thing when it comes to being an unpaid intern or volunteer.  To be safe, you have to pay everyone.” 

The Legal Punch Line

The reality is — there is no risk-free way for a “for profit” business (as opposed to a charity or government employer) to use unpaid “volunteers.” So if someone wants to gain experience by working for your company without pay, be forewarned: If the relationship sours, you could face a claim for unpaid minimum wages and overtime.  You may also be liable for unpaid Social Security, unemployment and workers’ compensation payroll taxes, as well as for failure to withhold taxes and penalties.

And perhaps even more importantly, there is the matter of intellectual property.  What happens if your unpaid intern or volunteer designs a great logo for you?  Or writes or contributes to a key piece of software?  If you haven’t paid that person anything, how will an IP assignment document they may have signed be enforceable?  Wouldn’t it fail for lack of consideration?  People remember that great story about Phil Knight and how he paid $20 or thereabouts for the Nike swoosh.  When they tell this story, they seem to focus on what a great deal he got.  But they miss the key point of the story – the fact that he paid for it.  If he hadn’t, he would have paid a lot more later when he was sued for using someone else’s IP.

What about using student interns?

There is a very limited exception under the federal and state wage and hour laws governing when companies may use unpaid student interns. These individuals should only be “shadowing” or “observing” a regular employee, or doing make-work assignments.  And you must be spending time with them – actually teaching and mentoring them!

Employers must meet the following five conditions to safely categorize someone as an unpaid student intern:

  1. The intern must receive on-the-job training similar to that which would be provided through a school;
  2. The primary benefit of the internship must be for the intern;
  3. The intern must not displace regular employees;
  4. The employer must reach an understanding up front with the individual that the intern is not entitled to pay or benefits during the internship or a job at the end—savvy companies require interns to sign a statement documenting their status and acknowledging that they are not entitled to compensation or a job at the end of an internship;
  5. The employer gets no immediate advantage from the intern’s activities—in fact their presence is supposed to impede your operations on occasion, based on the assumption that you are spending time training and educating them.

Conclusion

Not paying people who work for you is generally a bad idea.  Volunteers may appear to be an inexpensive alternative, but in reality, they are not.  Internships are a theoretical possibility but it is hard to use them correctly, and in compliance with the law.

If you have any questions regarding employee staffing or payroll classifications, please contact Mary Drobka, Joe Wallin or your regular employment law attorney.

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