(This post is written from the perspective of the laws of the United States. Your country may have similar rules and regulations. Check with a licensed attorney in your area.)
Lately I’ve seen lots of blog posts and social media discussions about how you can hire unpaid interns to get your administrative, marketing, social media, and business grunt work done, without having to pay anyone.
Free labor for all!!
Sounds too good to be true? Yeah. That’s because it is too good to be true.
In the United States, all of us engaged in interstate commerce (yeah, this applies to 99.99% of you, because you sell stuff or sell services or sell advertising that does or might cross state lines) are subject to a federal law called the Fair Labor Standards Act. Passed back in the great depression, not only does this Act make it illegal to hire 10 year olds to do your bidding for 80 hours a week in an etsy-goods sweatshop, it also sets a federal minimum wage.
If someone works for you, you must pay them a minimum of $7.25 per hour.
In some states and cities, it’s a bit more, per state or local law. In San Francisco, for example, minimum wage is $14.00 per hour.
But what about interns? Isn’t that a special category, exempt from this rule? It depends.
Calling someone an intern isn’t a magic way to get around minimum wage law.
1. The internship is similar to training given at an educational institution. Are you *training* this intern in the same way they would be trained or educated at a university, technical program, or weekend seminar? Do they show up for classes, or do they show up to do productive work for your business?
2. The internship experience is for the benefit of the intern. Not for the benefit of you. The point of the internship must be just like any other education or training – to further the intern along in their career development. Not to provide a service to you.
3. The intern does not displace regular employees, and works under close supervision of existing staff. This is the kicker. Hiring an intern to do the work that you normally would give to an employee, virtual assistant, web designer, or other paid person = a huge red flag. If you would normally pay someone to do this thing, the person doing this thing is not a true intern. On the other hand, job shadowing (where the intern follows around another staff member) is indicative that there is no replacement, and the intern is legit.
4. The employer derives no immediate advantage from the activities of the intern, and is occasionally held back. It’s okay if you get a tiny (de minimis) benefit from the intern’s work (such as the intern took out the trash once). But overall, the intern is more of a cost than a benefit to you.
5. The intern is not necessarily entitled to a job at the conclusion of the internship. You can’t start someone as an unpaid intern and then hire them as an employee or independent contractor when they “work out.” If you want do do a trial period (which can be a great idea for any new worker), it must be paid. The Department of Labor also recommends that the internship be of a predetermined, set duration, similar to any class or training program.
6. The employer and intern understand that the intern won’t be paid. Best practice is that this is per a written agreement. As I said, this is just *one factor* – even if both of you agree that this is an unpaid internship, it’s a violation of the law unless the five other criteria also apply.
(See also how these standards are applied in other states with specific industries, such as New York labor standards and 2010 opinion letter, and California 1998 opinion letter and 2010 opinion letter.)
Yes, I know you had that horrid grunt work job at a newspaper when you got out of college, where you did research and writing and all kinds of journalist type work, and you didn’t get paid for that. Unless perhaps it was part of an internship where you got college credit, that was probably a violation of the FLSA. Many companies are getting sued and/or investigated about similar situations right now.
Yes, I worked as an unpaid intern for the Civil Clinic when I was in a law school, representing disabled and disadvantaged clients. But that was working for a non-profit, which while subject to the above rules, falls under a different additional set of criteria. A similar exception exists for government agencies (such as the White House interns, who work just about full time for no pay, doing research and writing, just like employees). The above six part criteria only applies to “for-profit” private sector employers.
So what happens if you violate the law?
1. Class Action: If you’re a big enough employer to make it worth the time, some lawyer could gather up your current and past unpaid interns, and file a class action against you for double the wages due, attorneys’ fees and costs, and an injunction prohibiting you from shipping your goods in interstate commerce. This is expensive and bad PR, since it looks like you are screwing students and other young people to make you more profit. Oy. If you’re a big employer using interns, contact your legal counsel and make sure you are in compliance.
2. Your Intern Sues: Your unpaid intern could sue you for double the past wages due, plus attorneys fees and costs. This may happen if they leave and decide they are upset, and such a lawsuit could be in conjunction with other claims (such as sexual harassment). They can go after two to three years of past wages, depending upon whether the violation of the law was “willful” – so that could potentially be a fair amount of money.
3. Department of Labor Investigation: If the Department of Labor (or your state or local equivalent) investigates you because someone initiates a complaint, then they could require back payment to the interns and various policies to get you back into compliance with the law. (If you do willful and repeated violations, there could be scary fines and even imprisonment. But I hope you wouldn’t be that stubborn.)
4. You have bad karma. You have someone working for you and your aren’t paying them. Why should your clients and customers pay you for your work, if you won’t pay other people for their work? Uncool. Okay, I’ve given you a bunch of bad scary news. Now here’s how to fix it. 🙂
How to Hire Interns Without Violating the Minimum Wage Law
1. Pay Them. Yes, this is obvious. But seriously, the minimum wage is $7.25-10.24 per hour – not a large amount of money (and frankly, not even enough for someone to live on). If a human being is doing work for you, which helps you make more money, then you should pay them. Not paying another human being for their labor is not only unlawful – it is unethical.
2. Go Through an Official School Internship Program. If you would really like to mentor a student in your discipline with only minimal (if any) non-karma benefit to you, that’s awesome. I recommend going through an official school or university program – not only because they will match you with the appropriate person, but also because it is in their interest to protect the rights of that student and make sure the internship laws are complied with accurately. This is not a slam-dunk that you will be complying with the law, and you still may need to pay your interns … but it does help.
3. Make It About Them. You want to do a training or apprenticeship program for up and coming people in your profession? Awesome. Then create that program. You can call it an internship or an apprenticeship or it can just be another seminar or set of classes. Make it for free and be compensated in good juju energy. You could even charge them for it – and then you will have even more incentive to make it only for their benefit.
4. Hire an Independent Contractor* Well, this doesn’t get around the whole “pay them” rule, because if you hire someone and don’t pay them, I doubt any labor or tax agency is going to believe that they are an independent contractor – since making zero money is a terrible way to run a business. (Unless, of course, you are paying each other in trade or another mutual benefit.) But, if the person working on your project is a true independent contractor, you are not governed by these minimum wage rules. There is a * after independent contractor, because there’s another whole set of criteria to determine if someone is really an independent contractor. But, that issue will be something I cover in another blog post.
5. Hire Someone Outside of the United States We’ve all seen virtual assistants and other staff advertised in other countries as working for as little as $2-5 per hour. These people may be independent contractors, and/or you may be hiring an agency who employs the workers and provides them to you per an agency contract. While U.S. minimum wage doesn’t apply here, there are business, logistical, and PR considerations to hiring low paid workers in another country.
Here’s the bottom line.
If you hire an “intern” to do work for you that contributes to you making more products or providing more services, you must pay them per the FLSA federal minimum wage law.
If you’re not willing or able to pay someone as little as $7.25 per hour, then either you aren’t ready to hire someone, or you aren’t running a real business.
Still have questions about hiring an intern or an independent contractor? Set up a 15-Minute Quick Call and get answers.