Warning: The following article contains graphic descriptions of extreme financial loss, stringent government penalties, and stressful, protracted litigation. Such material may not be suitable for some startups. Reader discretion is advised….
As a startup with competing financial demands, many new tech companies look to the possibility of hiring unpaid interns. These candidates are usually off from college or unemployed. An unpaid internship can be mutually enriching and valuable for both the intern and the company. However, it is vital to make sure that you carefully follow certain criteria, to avoid running afoul of federal and state labor laws.
Federal And New York State Law: Requirements For Hiring Unpaid Interns:
An individual performing work that an employee would normally perform must be paid minimum wage. This requirement was set by The Fair Labor Standards Act, 29 U.S.C. § 206, et seq., and the U.S. Dept. Of Labor’s Guidelines. In addition, if your employees are “nonexempt” under the FLSA (i.e., not performing executive or administrative duties, and are not salaried, and not earning more than $455 per week), then, in addition the minimum wage requirements, you must also pay “time and a half”, or 1.5 times the employee’s hourly rate of pay, for any hours worked beyond 40 hours in a work week. This is true under both the federal Fair Labor Standards Act and the New York State Minimum Wage Act. In addition, in New York State as of 2017, the salary per week that is included in required over-time pay is higher than the $455 per week that the federal law sets forth. In other words, your employee may meet certain criteria for over-time pay, until they are earning somewhere between $727.50 and $825 per week, depending upon what part of New York State your business is in, and how many employees you have. In addition, the minimum weekly income amount, in relation to the federal laws, is currently the subject of several court battles, and may change again, under the current administration. It is therefore suggested that you consult with an employment law attorney, to determine if your employee is subject to over-time pay requirements or not.
How Can You Hire Unpaid Interns, And Comply with Federal And New York State Minimum Wage Laws?
In order to hire unpaid interns, and be exempt from the federal and New York state minimum wage Laws, your private, for-profit business must meet a number of criteria. These are established by both the U.S. Department of Labor, and the New York State Department of Labor. If your company meets these criteria, you can help enrich an intern’s future, while gaining assistance with certain functions at your workplace. These legal criteria are as follows:
1. Training should resemble an educational training program:
Any benefit provided by your unpaid intern to your company, as the employer, must be secondary. Training your intern would include teaching them new skills and advanced knowledge, which are useful in a particular field, vocation, or industry. The goal of the internship should be to benefit your intern.
Additionally, training that is provided should be broad. It must be of value in multiple employment settings, and building upon a classroom or academic experience. Consider a tech startup company hiring an unpaid intern from a technical institute. This intern might be tasked to work and learn new coding techniques under an experienced lead developer, for the intern’s own educational experience.
Scheduling Coffee With Jerry And George Is Not An “Educational Experience”:
Any Seinfeld fans out there remember when Kramer had an intern, to assist him with “Kramerica Industries?” Scheduling your meetings and appointments, getting coffee for the staff from Starbucks, taking phone messages, and running errands. These routine tasks did not provide Kramer’s intern with any educational or training experience, within a specific field.
2. Hiring of intern is not a replacement for regular employees:
It is important that you do not hire an unpaid intern to replace or augment regular staff. Quite often, startups experience a high turnover rate in their beginning stages. As such, they often make the mistake of hiring an unpaid intern shortly after layoffs or resignation of a paid employee. Then the “intern” takes on the former employee’s job duties. Such an action could be seen as having an unpaid “replacement employee,” thus violating the federal and state minimum wage laws.
3. Make it clear (in writing) that the intern is not entitled to a paid job, upon completing their internship:
Make it clear through verbal communication, and in writing, that the unpaid internship position is for a finite duration. This finite time should be established prior to the internship beginning. It is important that you, as the employer, not use your unpaid intern’s time with your company as a “trial period” for potential immediate employment, at the end of the internship. This point often brings questions from clients. “Well, what if I hire the most amazing, talented unpaid intern? Can I never hire him / her full time, when he / she is in the job market?” Not exactly. It is acceptable for you to consider employing a former unpaid intern, at some point in the future. However:
- You should not offer an immediate paid position, or the promise of one, upon successful completion of the internship;
- You don’t want to give the impression that there is a job waiting, after the unpaid internship concludes.
Otherwise, the unpaid internship will likely be in violation of the FLSA and the New York State Minimum Wage Laws, as an unpaid “training period,” where work was rendered, without compensation for said services. Additionally, make sure you convey to your intern, as part of a written internship program and agreement, that he or she is free to take positions or jobs elsewhere.
4. Notify your intern, in writing, that they will not receive wages or benefits:
Such writing should be in the agreement that the intern signs with your company. It should also be included in any advertisements, job boards or student-job sites. This includes a notification that the unpaid intern (whether student or other) is an “unpaid intern,” not an employee, and is not entitled to benefits of health or dental insurance, pension benefits, or free goods and services. Business owners often don’t realize this latter rule, and so they give their employees free goods, gifts, and complimentary services – which could potentially land them in trouble with the Department of Labor. Having an express statement in writing avoids the risk of such confusion. Finally, it minimizes the chance that the unpaid intern will be misled into thinking that they are entering an employer-employee relationship.
5. Recruiting process is not the same as the process for hiring employees:
When you are running an advertisement to hire a paid employee – or are putting the word out on Slack – while simultaneously advertising an unpaid intern position for a semester or any period of time, make sure these two positions (paid and unpaid) are set forth in two distinct, separate postings. There should be different criteria for each, with the opportunity to provide education and training experience as the main objective listed for your unpaid intern.
You should further state different hiring protocol for your employees and your unpaid interns. Education, training and benefit to the intern being the primary objectives for the unpaid internship. Many companies try to save money, by running all of their hiring needs in the same ad. It is worth spending the money on an extra advertisement, to maintain compliance with federal and New York State guidelines.
Unpaid Internships Are Feasible, If Done Correctly:
Often, the possibility of negative consequences scares people from taking healthy risks. Many of life’s undertakings, when approached with care and attention, can be a rewarding and beneficial experience. Understanding the legal guidelines for hiring unpaid interns can allow your startup or tech company to offer an authentic, valuable experience. This in turn benefits your interns, allowing you to teach and train an up-and-coming generation.
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