Excluding unpaid interns from your payroll service

Should student interns be a part of your payroll? Some employers think it’s not necessary, reasoning that interns are still in school, live with their parents, receive valuable experience and may even drive their own new cars to work. These employers believe using unpaid interns is a smart financial move that allows their companies to save money on wages. However, this line of thinking has become much riskier in the wake of a recent court decision and the filing of new lawsuits.

A spate of legal actions have been taken by former interns who are accusing employers of violating the federal Fair Labor Standards Act and state laws by not paying them. Some law firms have put up websites offering services to former unpaid interns who want to try and recover back wages. “If you have held an unpaid internship during the past six years, even if you received school credit for the internship, we would like to talk to you,” the law firm representing the plaintiffs in a recent law suit.

Employment attorneys and HR professionals expect there will be a lot more of these cases in the future — and they won’t be limited to the entertainment and publishing sectors. Consequently, businesses that use unpaid interns, or interns who are paid less than the minimum wage, need to familiarize themselves with the relevant state and federal labor laws so they are in compliance.

All unpaid internships are not illegal but an organization must meet strict requirements in order to have a legal internship and pay nothing or less than minimum wage. If you continue to use unpaid interns, ensure you meet the six-point test from the U.S. Department of Labor:

1. The work performed (the DOL refers to it as training) is an extension of a trade studied by the student. Even though the intern works on, or from, the business or organization worksite, the work must be “similar to training which would be given in an educational environment.”

2. The training is for the benefit of the student intern.

3. The intern does not replace regular employees, but instead works under close observation of employees.

4. The employer derives no immediate advantage from the student intern’s activities. In fact, “on occasion [the employer's] operations may actually be impeded.”

5. The intern is not necessarily entitled to a job at the conclusion of the internship. The employer holds out no promise of future employment.

6. The employer and the intern both understand that the intern is not entitled to wages for the time spent in the internship.

So before you exclude interns from your payroll service, consult with your HR department, your attorney, or a qualified payroll service provider.

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