Intern season is here!  While interns play an important role to an organization there are key factors to consider such as whether an internship should be paid or unpaid.  

Unpaid internships are a great way for students to gain experience and for the organization to meet budgetary constraints.  However, an unpaid internship must meet certain state and federal guidelines.   If an unpaid internship fails to meet the guidelines then their unpaid internship program may fall under an employment relationship.  The employment relationship means that the intern must be paid.  

The article below outlines what the Department of Labor and California Labor Department considers a true unpaid internship.   

There are a few insurance policies that may help protect your organization against claims and lawsuits.   If you are wondering what type of insurance protects your organization from lawsuits involving unpaid internships the answer is....it depends on the type of claim.  An unpaid internship claim may be covered under Directors & Officers or Employment Practice Liability Insurance. However, these are not standard coverages and each insurance company writes their own coverage forms.  One of many important issues to consider is potential wage and hour defense if it is determined that your intern should be classified as an employee.  

Another issue to consider is if the unpaid intern is injured at your organizations work site.  Workers compensation may not cover that unpaid interns injury.  Instead your organization may want to consider a Volunteer Accident Policy with high enough limits to protect the intern.   Call us if you have further questions.  

Warmest Regards, 

Lillian Romero Gomez
Baker, Romero & Associates,
Insurance Brokers, Inc.
750 Terrado Plaza, Suite 238
Covina, CA 91723
PH:  626-332-2258
Like us on FacebookFollow us on TwitterView our profile on LinkedInView our videos on YouTube

- HR  Alert - 
Internship Rules from DOL and CA Labor Dept.
Summer's arrival means you may be considering internships at your company.
Internships can be mutually beneficial for both students and employers. Students get the chance to gain experience in an industry they've selected for a future career, and employers get to assess the interns' future aptitudes as potential employees down the line. However, if you aren't up to date on crucial laws and regulations such as FLSA and California regulations on this issue, you could find yourself in legal hot water.
There are specific requirements that must be met before an internship can be classified as unpaid.
Generally, if the intern is performing tasks for the benefit of the employer, he should be paid.
There have been recent news reports about the legality of unpaid internships and the Labor Department's plan to crack down on employers' who use unpaid interns.
According to the US Department of Labor (DOL), "If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law."
The DOL identifies six criteria that employers must use to determine whether an intern should be paid. Other than what has appeared in news reports, there is little information on how the agency intends to increase enforcement on unpaid internships.
US DOL (FLSA) -- Intern/Trainee Classification Factors
The U.S. Department of Labor's Wage and Hour Division (WHD) has developed the six factors below to evaluate whether a worker is a trainee (intern) or an employee for purposes of the Fair Labor Standards Act

  1. The training, even though it includes actual operation of the facili
    ties of the employer, is similar to what would be given in a vocational school or academic educational instruction;
  2. The training is for the benefit of the trainees;
  3. The trainees do not displace regular employees, but work under their close observation;
  4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer's operations may actually be impeded;
  5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.
If ALL of the factors listed above are met, then the worker is a "trainee", an employment relationship does not exist under the FLSA, and the FLSA's minimum wage and overtime provisions do not apply to the worker.
Because the FLSA's definition of "employee" is broad, the excluded category of "trainee" is necessarily quite narrow. Moreover, the fact that an employer labels a worker as a trainee and the worker's activities as training and/or a state unemployment compensation program develops what it calls a training program and describes the unemployed workers who participate as trainees does not make the worker a trainee for purposes of the FLSA unless the six factors are met.

California Labor Dept. Revises Guidelines on When Interns Must Be Paid

As the number of internships has risen sharply, many interns have complained of being placed in unpaid positions doing largely unskilled work. If considered employees, interns must be paid at least the minimum wage. Overall, the guidance from the California Division of Labor Standards Enforcement (DLSE) was emphatic that for internships to be unpaid, they must be educational and predominantly for the benefit of the intern, not the employer.

California and some other states require that interns receive college credit as a condition of being unpaid. But federal regulators say that receiving college credit does not necessarily free companies from paying interns, especially when the internship involves little training and mainly benefits the employer.

California has embraced the DOL's established six criteria to determine when internships can be unpaid. The criteria include that the internship should resemble training given in a vocational school or academic institution, that the intern does not displace a regular paid worker and that the employer "derives no immediate advantage" from the intern's activities and that all six criteria must be satisfied for interns not to be paid. But the DLSE's guidance embraced a less strict test, saying the "totality of the circumstances" should be assessed, a standard adopted by the United States Court of Appeals for the 10th Circuit.

In the new guidance, the DLSE noted that it had previously concluded that interns should be paid if they did any work normally done by a regular worker. But in showing more leeway, Mr. Balter, acting chief counsel for the DLSE, recently wrote that interns could do occasional work done by regular employees, as long as it "does not unreasonably replace or impede the education objective for the intern and effectively displace regular workers." 
O  Red Flag Tips
  • While this is a rare case where CA is more lax than the Federal standard, we recommend you follow the DOL's Six Intern/Trainee Classification Factors. If you have an intern answer a phone or you bring in grunt work for the intern to go through, you are at risk of an off-the-clock claim.
  • The best option is to pay interns at least minimum wage to avoid the potential time and expense of defending a potential off-the-clock claims.
For more information or assistance with your internship program, please call our office.
The Team at HR NETwork
Phone: 714.799.1115
Fax: 714.898.2731
We help small businesses become GREAT employers!
Minimizing risk and liability with quality HR expertise,
hands-on personalized service, and a passion for what we do!