Summer interns: To pay or not to pay?

Dear Alex: 

Our office received a résumé from a local college student who asked to intern for us, free of charge. We have had unpaid interns in the past and it has worked out, but the students were placed in our office through their schools. This time, the student has approached us directly and we don’t know how to arrange this employment/internship relationship. Do we have to pay this intern?

This is a common question, because many employers “hire” interns on an unpaid basis under the assumption that a student in an apprenticeship-type role is categorically an intern, and that interns do not need to be paid.

In reality, many of these employer-intern arrangements are actually employer-employee relationships, and the employee is entitled to wages and all of the other benefits of employment.

The California Division of Labor Standards Enforcement (DLSE) follows federal rules for determining whether an individual is classified as an intern and may be unpaid, or whether the nature of the work and relationship amounts to an employer-employee relationship.

The DLSE applies a six-factor test that, when reviewed under the totality of the circumstances, determines whether the individual is an employee or an intern, and may be exempt from minimum wage requirements.

The six criteria are (paraphrased):

1. The internship, even though it includes actual work at the employer’s facilities, is similar to training that which would be given in school;

2. The internship is for the benefit of the intern, not the company;

3. The intern cannot displace regular employees, but work under the close observation of employees;

4. The employer derives no immediate advantage from the activities of the intern, and on occasion the employer’s operations may be actually impeded by the intern;

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5. The intern is not necessarily entitled to a job at the end of the training period; and

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

The criteria are intended to ensure that the intern is the primary beneficiary of the internship relationship, benefiting from the training and experience received; that the company does not financially benefit from the work without paying for it in wages; and that expectations are clearly established between the company and the intern that the intern is not guaranteed a job in exchange for working for free, and that the intern will not be paid for the work.

In practice, these criteria are usually satisfied when an internship is coordinated through a school and course credit is earned by the intern, because the schools design their internship programs to fit the law. When the schools are not assisting as a third-party intermediary, employers should proceed with caution when taking on unpaid interns.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on July 7th, 2015. You can read it on the Register's website here: "Summer interns: To pay or not to pay?"