6 Must-Haves for Contracts with Unpaid Interns
Businesses and entrepreneurs are often drawn to the idea of hiring unpaid interns because … well, they’re unpaid. But many don’t realize that there can be a lot of issues related to hiring unpaid interns.
In this post, we’re going to cover the basics on unpaid internships and what you should include in your contract with any unpaid intern.
To start off, internships are work experiences offered by a company or an organization. They are meant to be educational experiences set in the real world.
They can be paid or unpaid. Either way, the goal of any internship should be to teach the intern, not to use them to support the business.
Unpaid internships are legal, but can be tricky.
The laws are pretty strict about unpaid interns.
Why? Various industries have abused unpaid interns (looking at you, Hollywood!), hiring unpaid interns to essentially do grunt work that provided absolutely no educational value.
When you enter into the murky waters of unpaid internships, you need to be familiar with two sets of laws because you need to comply with both of them: (1) federal law and (2) state law.
These may or may not be the same depending on your state. (For example, in CA, they are similar but not the same.)
Under federal law, there have been some recent changes over what counts as an “unpaid intern”.
Before 2018, the Department of Labor looked for 6 essential ingredients to make sure you had a legit unpaid intern (vs. a disguised employee).
Miss one of these ingredients and the Department of Labor can call your intern an “employee”, forcing you to pay minimum wage, taxes and possible penalties.
In 2018, the Department of Labor switched to a different “test” to figure out whether your unpaid intern is truly an “intern”.
The good news is that it’s not as strict as before. The bad news is that it still requires you to set your internship up properly.
The Department of Labor uses what it calls the “primary beneficiary” test. As the name suggests, the test is looking to make sure that it is the intern, NOT the company, that will be getting the most benefit out of the internship.
How does this test work?
The Department of Labor looks at seven (7) factors. Unlike the old test, you don’t necessarily need all seven. However, the more factors you meet, the better case you have that you have hired an intern and not an employee.
Here are the seven factors:
There’s no expectation of payment. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
It’s similar to hands-on training the intern would get at school. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
It’s tied to the intern’s degree (e.g., receiving credit or part of a course). The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
It’s works with the intern’s school schedule. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
It’s for a specific period of time. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
It’s not work you would have hired an employee to do. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
There is no promise of a paid job at the end. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
To summarize, your internship program has to be set up as an educational experience.
That’s why it’s a huge benefit if you can get the intern’s college to give school credit for the internship – that’s essentially a stamp saying that it is an educational experience.
The intern should mostly be learning during the internship.
The intern cannot be a substitute for an employee. The intern can certainly help with tasks but the main objective should be to educate and train the intern.
Along with this theme, it needs to be clear that this internship is not a “test-run” to see if you want to hire them full-time. It’s an educational experience with no full-time prospects at the end.
A good example of how you can structure the internship is to have the intern “shadow” a person within the company so that the intern can learn new skills by observing. Sure, the intern can perform tasks, but it should always pass the smell test of whether it’s for the main purpose of teaching the intern.
After you set up the structure of your internship, do your interviews, and pick a candidate, the next step should be have a written contract in place.
Like any written contracts, the purpose is to lay down expectations and obligations. It’s also a good thing to have in case anything breaks down (e.g., the intern comes back and argues that he was actually an employee).
Here are 6 must-haves in your unpaid internship contract:
Make it very clear that the internship is primarily to help the intern learn and obtain new skills.
List out (1) the tasks that the intern will perform, (2) the learning objectives, and (3) how those tasks align with those learning objectives. Make clear who will mentor or supervise the intern during the internship.
Clearly state a definitive start and end date of the internship.
An internship should only last as long as the intern is learning. If the intern is in school, it should accommodate the intern’s school schedule or academic calendar.
If the intern will be receiving school credit, clearly state all the relevant details.
This can include details about how many credits the intern will receive, if there are any requirements like writing a paper or filling out a survey, etc.
Clearly state that the intern will not be replacing or be a substitute for any employee.
This means that the intern will not be responsible for doing any employee’s job duties. That doesn’t mean the intern can’t help out; it just can’t be where the intern is essentially doing the job of a paid employee.
Have the intern acknowledge that the internship is unpaid and that there is no paid job waiting at the end.
Have the intern acknowledge that the internship is unpaid, that the intern will not be an employee and that the intern will not be entitled to a paid job at the end of the internship.
Include confidentiality provisions or have the intern sign a separate non-disclosure or confidentiality agreement.
Even though you may not be paying the intern, you’ll likely be providing them access to confidential information about your business. It’s important to make sure you have them promise not to share or use your confidential information for any other purpose than their internship.
As a final note, having a solid contract is important, but it’s not the only thing you need.
You have to act like it too.
Make sure your day-to-day interactions reflect a learning experience that mostly benefits the intern and not the business. The penalties for misclassifying an unpaid intern can be HUGE so it’s worth taking the time to cross your “T”s and dot your “I”s on this.
Disclaimer: This article is for informational and educational purposes only, it is not legal advice. It does not create an attorney-client relationship between you and Lawgood, its founders, or the author. If you need legal advice, you should hire a lawyer.
