There's No Such Thing as a Free Lunch, or a "Free" Employee: Pitfalls of Utilizing Interns and Volunteers

I see it more and more frequently—companies advertising for interns (free labor); potential employees offering to work for free to "show what they’ve got" (free labor); inquiries for volunteers (free labor). Unfortunately . . . there’s no such thing as a free lunch—neither is there such a thing as a "free" employee. Maybe there should be. Seems like a good idea—offering an opportunity to learn in exchange for the person’s labor; offering labor in exchange for a potential job. In those situations, there would be a give and take established by willing individuals. But currently in the United States, employers need to be careful not to run afoul of the Fair Labor Standards Act (FLSA)—the federal law that governs wage and hour regulations—as well as parallel state laws.

Under the FLSA, employment is defined broadly as "to suffer or permit to work." If your company "employs" someone (i.e., lets them work for you), you need to compensate that person according to the often complex and confusing rubric of state and federal wage and hour laws.

Can anyone volunteer? Yes . . . but only in the public or not-for-profit sectors. People can volunteer for the local library, the soup kitchen, "meals-on-wheels" or the local hospital. People can volunteer for their local ambulance corps or fire house. The only caveat is that people who work for a non-profit organization cannot volunteer in the same capacity in which they work, in the same jurisdiction in which they work. A paid firefighter cannot volunteer for his or her own fire company, but can volunteer in another county. Private companies, however, simply cannot have "volunteers."

What about "interns" or "trainees"? After all, lots of industries make internships the gateway to an entry-level position. Unfortunately, however, as with many things in the employment arena, what seems like a good idea may just be something that gets your company in trouble with the local Department of Labor. Internships are one of these problematic arrangements.

In order for people participating in an internship or trainee program to qualify as something other than the company’s employees who need to be paid, the program must satisfy all of the following criteria:

  1. 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;
  2. The training is for the benefit of the trainees or students, not the company;
  3. The trainees or students do not displace regular employees, but work under close supervision;
  4. The employer that provides the training receives no immediate advantage from the activities of the trainees or students and, on occasion, his or her operations may even be impeded;
  5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
  6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.

A relatively safe way to set up an internship program is to partner with a local college or high school. If the student is getting school credit for the program, if the employer has to submit progress reports to the educational institution, and there are sufficient educational components in the program (e.g., seminars and field trips, mentoring sessions with people in different departments, etc.), it is more likely that the program will pass muster . . . as long as all the above components are satisfied. The way the FLSA is set up, you get what you pay for—no pay, no work.

Remember, however, that under the law, an employer only needs to compensate employees at minimum wage (currently $7.25/hour under the FLSA, which comes out to about $13,000.00/year), and to compensate overtime wages if the employee works over 40 hours in one workweek (which the company can control). At this rate, it might be worth the investment to have paid "interns" and the associated ability to give them real work assignments that assist the company and its productivity, while providing peace of mind should the DOL come to call. Companies can still hire a paid intern for the summer, or a semester, and do not need to guarantee a job at the end of the internship period. Doing this may well be better than putting the company at risk from DOL penalties and fines—and you get to see how the intern functions under real working conditions.

Even though utilizing unpaid interns may seem like the perfect solution in certain situations, just as employees cannot waive the right to overtime compensation, neither can people waive the right to compensation for their labor when you "employ" them and permit them to work. You want someone to work for your company? To contribute to your bottom line? The company has to compensate them for their efforts.