As the summer quickly approaches, it’s the time of year that many employers consider hiring an intern for the summer. Start-up companies may view this as an opportunity to hire students as “cheap” or “free” labor. Unfortunately, there are a lot of misconceptions about unpaid interns. The largest misconception is that labelling a student worker as an “intern” means that the intern can work without compensation. Generally, unless certain requirements are met, an employer should consider students to be regular employees—subject to minimum wage, overtime, meal and/or rest period laws. Not doing so could make the employer liable for unpaid wages and penalties, including unpaid employment-related taxes, attorneys’ fees and various penalties, such as California waiting time penalties and California Private Attorneys General Act (PAGA) penalties.
Of course, it is possible to create an unpaid internship program. The Department of Labor (DOL) has a bullet point checklist for what qualifies as an unpaid internship. The DOL has admitted it is “quite narrow.” Below is a summary of the specific requirements for unpaid internships. The items in bold are the ones that may be more difficult to meet.
- The internship is similar to training that would be given in an educational environment.
- The internship experience is for the benefit of the intern.
- The intern does not displace regular employees, but works under close supervision of existing staff.
- The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
The thrust of these unpaid internship rules is that the relationship should solely benefit the intern and provide no immediate benefit to the employer. Thus, if the interns are engaged in the operations of the employer or are performing productive work (for example, basic coding, quality assurance, filing, other clerical work, or customer assistance), the interns will be subject to the minimum wage and overtime requirements because the employer benefits from the interns’ work.
If your company is considering using interns this summer, please contact a knowledgeable employment lawyer to make sure that your company is compliant with the various federal and state rules relating to interns.
Investment Company Status Considerations for Cash Positioning in Wake of Bank Failures
Given this week’s headlines, many emerging companies may be asking themselves: “Why am I holding so much cash?” The Investment Company Act of 1940 (the 1940 Act) may be to blame. “But I don’t have any intention of being an investment company. Aren’t those mutual funds or…
Distressed Bank Update as of March 16, 2023
In the three days since federal authorities announced sweeping measures to protect depositors of Silicon Valley Bank (SVB) and Signature Bank and help prevent additional bank failures (as discussed in our update of March 12, 2023), the U.S. banking system appears to have stabilized, at least temporarily.…
Short-Term Cash Management Alternatives
In response to recent client questions regarding the various considerations and options for holding short-term funds, we have prepared a reference chart comparing certain key characteristics of demand deposits with government securities, money market funds, and other short-term cash management instruments. Please note that this information is…