At some point in the life of your business, you are going to think about getting someone to help you with some aspect of the business.  Among startups, this could take the form of recruiting interns, granting equity in return for work, bringing in an independent contractor, or hiring an employee.  How these paths differ and the considerations and decisions you will need to make will be the topics for the next few blog entries here.

Our first topic is interns.

To clarify, when I talk about interns, I mean unpaid interns.  Paid interns are subject to the same rules as any other employee regardless of what you call them.

Many business founders I have met look to college students who want experience as a pool of free labor by offering internships.  However, the law says that individuals who are “suffered or permitted” to work must be compensated for the services they perform for an employer.  There are a couple of very narrow exceptions to this rule, of which private sector interns are one, but they should not be considered free labor and the recruitment and use of interns must follow certain guidelines.

The rule of thumb is that an unpaid internship must benefit the intern more than the business and it must provide some sort of educational experience for the intern.  A safe way to make sure this is the case is to reach out to the intern’s major department to find out their guidelines to grant credit for outside internships.  However, this takes time, which is usually at a premium for founders.

In the alternative, there are guidelines for interns as established by the Department of Labor:

—  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;

—  The internship experience is for the benefit of the intern;

—  The intern does not displace regular employees, but works under close supervision of existing staff;

—  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;

—  The intern is not necessarily entitled to a job at the conclusion of the internship; and

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

        Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act, Department of Labor, April, 2010 

These are not hard rules for internships but guidelines that will be considered in any evaluation of your intern’s program by the DOL. Your efforts to comply with these guidelines will serve as mitigation should your intern complain to the DOL or file suit.

The educational environment and benefit to the student specifically addresses the complaints of the interns from the fashion and magazine industries who sued a few years ago because their responsibilities were mostly menial tasks such as getting coffee, filing, running errands, etc. with no relationship to the business or industry for which they were interning.  Essentially, interns are not go-fers and their participation in your business should not be the same as an entry level employee of your business.  They need to have some meaningful work that teaches them about your business and should be supervised by someone from whom they can learn.  They cannot replace an employee that you would otherwise hire.  While they can perform work that benefits the business, the primary purpose of the internship is for their education and experience, not to move your business forward.

So, what happens if you do not abide by the guidelines?  Most likely nothing except you will get a reputation for being a lousy option for internship opportunities.  However, if you do have an intern who is unhappy and decides to sue for wages, there is a good chance that you will not only have to pay that intern for the time they were with you but you will also likely have a visit from  the DOL leading to penalties beyond the wages owed.  In other words, it could end up costing a lot more than any benefit you will have gained by using the intern.