To Pay or Not to Pay Interns? That’s the question. Here’s the answer.
BY CYNTHIA L. HILL, CHIEF DEVELOPMENT OFFICER, DECKER JONES, P.C.
With summer just around the corner, many employers are considering whether to establish or continue summer internship programs. Internships are a reliable way of training personnel and pf picking people for future employment. Typically, interns are young adults in college or high school. Interns may also be mature employees seeking new careers.
Ideally, internships are a mutually beneficial arrangement for both interns and employers. Interns can improve their basic knowledge, skills and abilities in order to obtain gainful employment in a particular field, as well as benefiting from networking opportunities. Likewise, employers can benefit from internships by tapping into a pool of potential employees about whom the employer can learn much more than can be derived from resumes or job applications.
While the benefits from an internship program make them very attractive to employers, companies need to be aware that there are serious legal issues associated with employing interns.
First, employers should be careful not to violate state or federal laws regarding the employment of underage persons. For example, in Texas we have specific prohibitions as to: (1) the hours minors under the age of 16 can work; and (2) the types of jobs and industries in which minors under the age of 18 may be employed. Once an employee is 18, there are no state or federal child labor rules which are applicable.
Similarly, employers should be careful not to discriminate based on age against older applicants for internships, who may have been laid off or are seeking different experiences in their retirement years. Older workers may be just as qualified as, or even more qualified than, other applicants in satisfying an organization’s goals for adopting an internship program in the first place.
Another major legal concern with internships is the application of minimum wage and overtime laws. Internships are not a problem if you are paying interns at least minimum wage and are paying overtime hours (any hours worked over 40 in a work week) at one-and-one-half times their regular wage rate. In January 2018, the Department of Labor adopted a “primary-beneficiary test” for determining whether interns are employees entitled to compensation. Under the new guidelines, the DOL considers the following seven criteria to identify the primary beneficiary in determining whether an employment relationship with an intern exists:
- Both parties understand that the intern is not entitled to compensation.
- The internship provides training that would be given in an educational environment.
- The intern’s completion of the program entitles him or her to academic credit.
- The internship corresponds with the academic calendar.
- The internship’s duration is limited to the period when the internship educates the intern.
- The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits.
- The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s completion.
Misclassification of interns as nonemployees could result in the interns being deemed employees eligible for Social Security withholding and matching, unemployment insurance benefits and workers’ compensation. The tax ramifications for an organization having “employees” for whom FICA taxes have not been withheld and paid can be substantial, including a 100 percent penalty for FICA withholding not actually paid by the employer. As such, the safe option is to stick to paid internships. If your company is contemplating some kind of unpaid internship, check with your legal counsel to make sure the program fits the above criteria.
Cynthia L. Hill is a shareholder and chief development officer for Decker Jones, P.C., an occasional contributor to Fort Worth Inc. Experienced in employment matters and litigation, she practices before the National Labor Relations Board and state and federal courts.
Published in Fort Worth, Inc., March 2019