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U.S. Department of Labor Clarifies Rules for Unpaid Internships

Apr 23, 2010

Unpaid internships have long been a mainstay of college students seeking real-world experience. Unfortunately, the recession has led many private companies to take advantage of this free labor. In response, the U.S. Department of Labor has released a fact sheet explaining federal internship regulations under the Fair Labor Standards Act.

Successful Intern

Striking a Balance Between Work Experience and Free Labor

The summer after her freshman year at Northwood University, Anna Friedman accepted an unpaid internship in the public relations department of a nursing home in her hometown. She spent three months working closely with mentors in the department, writing press releases, interviewing residents, compiling media kits, creating promotional materials and securing special events coverage with local media outlets. The hours were flexible enough to allow her to also work part time and, as a marketing and business management major, Anna gained career experience that was 'worth so much more than $8 an hour.'

Jenna Lindberg, a graduate of the University of South Carolina, also reflects fondly on her unpaid internship experience. During her senior year, an alumnus offered her a full-time, unpaid internship at an international culture exchange organization headquartered in California. It was 2009, and with no other job prospects in sight, Jenna headed across the country right after graduation. She put in three months of full-time, intensive training, living off graduation money and her savings while she gained hands-on experience in forecasting, competitive research, marketing campaigns and even expansion planning. At the end, she was rewarded with a full-time position and an opportunity to spend summer 2010 working in Spain.

Experiences like these are part of a long tradition: College students and recent graduates offer a free pair of hands in exchange for training, work experience and invaluable job connections. Many students have positive experiences that become vital for their careers. But others are not so lucky: The recession has forced many businesses to lay off regular employees, and they've started exploiting unpaid interns to fill the labor gap.

Bored Intern

There's no official count of unpaid internships, but some figures do indicate a definitive rise in the last couple of years. The National Association of Colleges and Employers reports that 50% of graduating students held internships in 2008, up from only 17% in 1992. That represents hundreds of thousands of student internships, one-quarter to one-half of which are unpaid. The New York Times points to Stanford University's job board as further evidence of the increase: Employers posted 643 unpaid internships in the 2009-2010 academic year, up from only 174 two years ago.

Employment attorneys have also noticed the increase. Some report getting calls from unemployed professionals seeking to volunteer in order to avoid gaps on their resumes. Others report being contacted by private employers trying to find out if it's legal to reduce costs by replacing paid employees with unpaid interns.

Although some students seeking work experience see the growth in unpaid internships as an increase in opportunities, many feel they're being taken advantage of. Most internships involve some unskilled labor, but many students end up spending 40 hours a week at menial tasks. Students report spending their days filing, shipping and cleaning without receiving any industry training in exchange.

Other students note they wouldn't have minded the nature of their work - if they were getting paid. Marian Schembari interned at a website that caters to professional women. She liked her bosses and was happy to get experience writing articles. But the internship demanded that she travel long distances and work long hours. She wasn't reimbursed for travel or paid for her work, and after three months there was neither an end to the internship nor a paying job in sight. The company couldn't afford to hire someone to do her job, so they exploited Marian as an unpaid 'intern' until she grew frustrated and left.

Some college administrators complain that the growth in unpaid internships has also undermined their efforts to reach out to low- and middle-income students. There's been a big push in recent years to improve financial aid and make higher education more accessible to students who can't afford it. But unpaid internships favor students from wealthier families who don't need the income, making it impossible for low-income students to keep up.

Money Problems

To Pay or Not to Pay: Defining the Law

In recent months, the growing problem has caught the attention of several state regulators. Officials in California and Oregon have started investigating and fining employers for violating minimum wage laws. M. Patricia Smith, New York's former labor commissioner, ordered investigations last year into several unpaid internships. Now that she's working in the federal Labor Department, Smith and members of the wage and hour division have escalated nationwide enforcement.

This week, as part of the federal initiative, the U.S. Labor Department issued a clarification of the regulations governing internship programs under the Fair Labor Standards Act. The rules, which focus on for-profit private sector businesses, offer guidelines for determining whether an intern must be paid minimum wage and overtime. The six-part test helps employers distinguish between an employee, who must be paid, and a trainee, who can legally work as an unpaid intern.

The Labor Department's six criteria for a legal unpaid internship are:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

At the heart of the rules above are two ideas: The internship environment must be similar to an educational environment, and the intern - not the employer - should be the primary beneficiary of the experience. Interns should be gaining skills that they can use in multiple workplace environments, and the employer shouldn't be reliant upon their labor. Although some menial work may be part of the experience, interns should not be regularly conducting routine business. The Labor Department is also very clear that while clerical skills may be applicable to other jobs, any productive labor should be paid under minimum wage laws.

Other key issues include supervision and job entitlement. Interns may shadow employees, but if an intern works in the stead of another employee, they should be paid. Job entitlement refers to both the duration of the internship and its relationship to employment. The length of an internship should be determined before it begins, and the internship should not be considered a trial period for permanent employment.

Interns

It's important to have guidelines that prevent interns from being exploited by opportunistic companies, but not everyone is happy about the stricter enforcement. The issue of job entitlement may be unpopular for many students who pursue internships because they're a gateway to a paid position. Some college officials have also expressed fear that the accelerated enforcement and recent media attention will have a chilling effect on employers offering legitimate internships. They may simply withdraw the internships out of fear of being fined for violating the letter of the law.

However, Ross Perlin of the Harvard Business Review points out that the regulations aren't just good for interns. In the long run, it's also good for companies to clean up unpaid internship programs because they can reflect poorly on the business. Companies seeking unpaid interns tend to look cheap and exploitative, as though they're trying to cut costs by taking advantage of student desperate for experience.

Furthermore, for businesses that offload responsibilities on interns, an unpaid internship can be a poor investment. Perlin points to the common practice of using interns to manage social media and web content. Relying on young people's pre-existing knowledge of these areas may seem clever, but it leaves regular employees scrambling to catch up when interns move on.

Of course, the biggest disincentive is the threat of a lawsuit. And with all the attention being paid to stepped up federal enforcement, that threat is becoming more and more real.

Students: Considering an unpaid internship? Check out the Department of Labor guidelines and consult with your career center to ensure that your rights are protected.

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