Stiffing Interns on a Paycheck Could Cost in the End

The help-wanted postings promise career-boosting experience.

“Be responsible for conducting one-on-one educational sessions with associates regarding new consumer-driven health plan options,” one says. “For new grads, this internship may convert into our associate account representative role, a regular full-time position which comes with a complete benefits package.”

The catch: no pay, at least for now.

Unpaid internships populate job search sites as companies contending with hiring freezes, smaller budgets or downsized workforces see this low-cost talent as a way of meeting their staffing needs until the economy rebounds.

“That’s not necessarily a viable option under the law,” warns Terri Stewart, an attorney with Fisher & Phillips in Atlanta. Employers contemplating this strategy need to understand the Fair Labor Standards Act’s criteria for unpaid internships.

Based on a landmark 1947 Supreme Court case, the six criteria include providing training similar to what would be given by a vocational school, not displacing regular employees with interns, and gaining “no immediate advantage” from their work.

“It almost has to be a little bit of a thorn in your side,” Stewart says.

It is unclear how many complaints are filed with the government each year about unpaid internships possibly violating labor law.

The U.S. Department of Labor does not separately track internship cases, says spokeswoman Dolline Hatchett. They are included with other minimum wage and overtime violations, she says.

In robust economies, these violations tend to go unreported, labor law attorneys say.

“As the economy tightens up, they’re going to start coming back,” says Randy Renick, an attorney with Hadsell, Stormer, Keeny, Richardson & Renick in Pasadena, California.

One of the best-known settlements involved an Atlanta public relations firm that paid $31,520 to former interns after the Department of Labor investigated its unpaid program.

“The person taking the internship can be taken advantage of,” says John Challenger, CEO of Challenger, Gray & Christmas, a Chicago outplacement firm. “When there is payment, there is accountability on all sides.”

The National Association of Colleges and Employers found that 98.6 percent of the internships offered by organizations that responded to a recent survey are paid. They plan to offer about 21 percent fewer internships this year, but to pay those interns better.

“The employers who tend to respond to this survey tend to use internships as a steppingstone to full-time employment,” says Edwin Koc, NACE’s director of strategic and foundation research. “They’re testing out the people.”

A previous study by NACE found that unhappy interns tended to be unpaid interns.

“If you have a dissatisfied intern, when they come back to campus, they are a bad ambassador for you,” says Claudia Tattanelli, CEO of Universum North America, which consults on employer branding and recruitment strategies.

The bad buzz isn’t limited to campuses anymore. Sites like InternshipRatings.com provide databases of reviews by former interns and list the best and worst programs.

“We’ll see more of that,” Tattanelli says.

Intern Bridge, a recruiting and consulting firm focused on Generation Y, found that 18 percent of internships were unpaid in 2007, the most recent data available.

Not paying interns shrinks the talent pool a company attracts, says Richard Bottner, president of Intern Bridge, and potentially cuts out stronger candidates.

“There is a huge population of students who simply can’t afford an unpaid internship,” he says.

Stewart recommends structuring unpaid internship program to meet the six-prong test at the outset.
 
“One of the absolute safest courses of action,” says Stewart, “is just to pay minimum wage.”