Structuring an intern programLEGAL Friday, June 1st, 2012
By David Middlebrook
Many churches, ministries and charities are increasingly using volunteers and unpaid interns partly because of the economic benefits from not having to pay wages, benefits and taxes to traditional employees. But have you considered how to legally structure an internship program? One of the primary legal issues that may arise in this area is worker classification. Federal and state agencies are investigating organizations for possible misclassification of labor. Failure to properly classify a worker can result in serious consequences.
Who is an intern?
According to the Department of Labor (DOL), if all of the following “Unpaid Intern Positive Factors” apply, the workers are not “employees” within the meaning of the FLSA and do not need to be paid:
- The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school.
- The training is for the benefit of the interns.
- The interns do not displace regular employees, but they do work under regular employees’ close supervision.
- The employer that provides the training derives no immediate advantage from the activities of the interns and, on occasion, the employer’s operations may actually be impeded (it predominantly benefits the intern).
- The interns are not necessarily entitled to a job at the conclusion of the training period.
- The employer and the interns understand that the interns are not entitled to wages for the time spent training. (Tuition assistance and nominal stipends for students are not considered wages.)
While this six-part test was originally developed and applied to a for-profit corporation, it is still a helpful guidance for determining if a worker is properly an unpaid intern. Furthermore, most courts have determined that it is not necessary for all six of the above factors to be satisfied in order for a worker to be classified as an unpaid intern.
Although the DOL has set forth a six-part test, this method of determining whether a worker is an unpaid intern has been met with criticism by various courts that prefer to evaluate the totality of the circumstances, where no one factor is determinative. In such cases, the courts have instead tended to analyze the economic reality of the training, as well as the circumstances surrounding the training, focusing mainly on whether the worker had an expectation of compensation and whether the employer received an immediate or direct advantage from the work.
Further – and of positive note for churches, ministries and charities – the DOL’s fact sheet on this issue states the following:
DOL also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic or humanitarian purposes to non-profit organizations. Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are genera lly permissible. DOL is reviewing the need for additional guidance on internships in the public and non-profit sectors.
Although we are still awaiting this more specific guidance from DOL with respect to religious and charitable nonprofit internships, the foregoing statement from the DOL is encouraging as it demonstrates that the DOL recognizes and generally allows uncompensated internships.
When is an intern not an intern?
In addition to providing a six-part test that indicates when an individual is an intern, the DOL has also provided some common examples of when an intern will not be considered an intern (and therefore is an employee). Please note that the presence of any one of these “Unpaid Intern Prohibited Factors” probably means the intern needs to be classified as an employee, especially when the unpaid internship program is not part of a formal academic experience:
- The employer uses the intern as a substitute for regular workers or as a supplement to its current workforce; or
- But for the intern, the employer would have hired additional employees or asked its existing staff to work additional hours; or
- The intern is engaged in the employer’s routine operations and/or the employer is dependent upon the intern’s work.
How to know whether to classify a worker as an unpaid intern or an employee? We wish there was a bright-line legal rule that would be a specific answer to the situation. However, until we get more specific guidance from DOL, the best practice is that you endeavor to ensure your internship program meets as many of the DOL’s six unpaid intern positive factors as possible and does not contain an unpaid intern prohibited factor.
The more your internship program looks like a formal academic internship program, the more likely it will meet the requirements. Make certain you have the appropriate contracts in place with your interns. If you follow this advice, you are in the best possible situation given the available judicial and governmental guidance we have available at this time.
David Middlebrook is a founding shareholder with Anthony & Middlebrook, P.C., The Church Law Group, Grapevine, TX. www.ChurchLawGroup.com