With summer just around the corner, employers are inundated with requests by students for summer internships. If your company offers such opportunities, taking a few moments to review the applicable regulations will help assure that the program complies with the law.
It goes without saying that a paid intern is an employee and subject to all applicable state and federal employment laws including those pertaining to minimum wage and overtime. Even if the internship is unpaid, failure to follow Department of Labor guidelines could lead to legal liability under the Fair Labor Standards Act.
Department of Labor Guidelines
The Fair Labor Standards Act (the FLSA) provides, of course, that individuals in an employment relationship must be paid for services performed. When is an unpaid intern an employee? According to guidelines published by the Department of Labor, if the following factors are met, there is no employment relationship and the intern need not be paid:
The internship, even though it includes actual operation of the facilities of the employer, is similar to training which 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 this intern;
The intern is not necessarily entitled to a job at the conclusion of the internship; and
The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
If all of these factors are met, the Department of Labor will conclude that an employment relationship does not exist under the FLSA. In such circumstances, minimum wage and overtime provisions do not apply to the intern.
Different rules apply for governmental agencies and non-profit organizations. Internships offered by governmental agencies, private non-profit food banks and non-profit organizations providing religious, charitable, civic, or humanitarian services are generally permissible so long as the intern volunteers his or her time freely and without anticipation of compensation.
A permissible unpaid internship will include some or all of these features:
- It is structured around a classroom experience as opposed to the employer’s actual operations;
- Academic credit is offered by a sponsoring institution;
- The internship provides the intern with skills that can be used in multiple employment settings as opposed to specific training in the employer’s operations;
- The intern does not perform the routine work of the employer;
- The employer is not dependent upon the work of the intern;
- Job shadowing opportunities that allow an intern to learn certain functions under the close and constant supervision of regular employees, but the intern performs no or minimal work.
- The internship is of a fixed duration established at the outset of the internship.
Factors which indicate an employment relationship (and trigger the requirement to pay wages) include:
- The intern is engaged in the operations of the employer;
- The intern is performing productive work such as, for example, filing, clerical work or assisting customers;
- The employer uses interns in lieu of hiring additional employees or offering more hours to existing employees;
- The intern receives the same level of supervision as other employees;
- The intern is offered employment to begin immediately upon the conclusion of the internship, effectively transforming the “internship” into a trial period of employment.
Summer internships, paid or unpaid, provide valuable experience to students. Employers need only exercise some caution is structuring the internship to avoid running afoul of DOL regulations. The DOL Fact Sheet on summer internships is available at http://www.dol.gov/whd/regs/compliance/whdfs71.htm
Recently, the media has brought a lot of attention to the expiration of the 2011 payroll tax holiday, which reduced for this year only an employees tax to 4.2%. As it stands, the tax holiday will end and payroll taxes will be increased to 6.2% beginning January 1, 2012.
However, the media has given less attention to the expiration of a number of other tax incentives designed to increase investment, create jobs, and encourage philanthropy. The expiring provisions include these five, and many others.
- The 15 year depreciation schedule for qualified leasehold improvement property, qualified restaurant property, and qualified retail property under Section 168(e), for property placed in service after 2011, will generally be increased to 39 years.
- The 100% bonus depreciation allowance for certain qualified property under Section 168(k)(1) and 168(k)(5), will be reduced in 2012 to 50% for most property.
- The expensing election under Section 179, $500,000 in 2011, will be reduced to $139,000 in 2012.
- The Work opportunity tax credit (WOTC) under Sec. 51(c)(4) expires (except for qualified veteran hires).
- The elimination of enhanced charitable contribution deductions for food, books, and computer equipment under Section 170(e).
Congress could step in and extend some or all of the expiring tax incentives, and there are several current proposals with respect to the payroll tax holiday. However, it is hard to have confidence that Congress can agree on anything these days. It may only be December 1, but the holiday could be over.