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Understanding The Legal Ramifications Of Unpaid Internships

Companies often offer internships to students at local colleges or high schools. An internship may be directly or indirectly connected to the student’s academic program, as the goal may be to earn academic credits as part of the learning experience or to simply gain experience while attending school. The flexibility of an internship may be one of the most attractive aspects for students. However, companies often have questions when deciding whether to offer paid or unpaid internships. If you need help understanding the legal ramifications of unpaid internships, consider contacting a knowledgeable New York labor and employment attorney with Schwab & Gasparini to learn more. Call (315) 422-1333 to reach the Syracuse office, (518) 591-4664 to reach the Albany office, or (914) 304-4353 to reach the White Plains and Hudson Valley offices.

What Are the Advantages of Internships?

Both interns and employers can benefit from paid or unpaid internship programs. The advantages vary depending on several factors, including the intern’s personal circumstances and the needs of the company.

For the Intern

Students and professionals changing careers can benefit from internships. An internship offers a learning experience under the guidance of a professional, usually for the purpose of earning college credit. Internships also offer the opportunity to learn about the company and its procedures while developing hard and soft skills to improve the intern’s resume and chances of gaining employment in that industry. Additionally, even unpaid internships come with the advantage of networking with professionals in the intern’s chosen field.

For the Employer

Employers also enjoy advantages from offering internships. These advantages can include:

 

• An expanded workforce: As interns take on beginner-level tasks, the employees have more time for their advanced projects. The interns learn about the business or industry by assisting with the daily tasks that must be done or by helping with larger creative projects

• Opportunities for mentorship: When a company’s employees have the opportunity to mentor interns, company morale can improve. Employees can experience renewed motivation and passion for the work

• Fresh perspectives: When interns are part of planning meetings and day-to-day operations, they may offer new insight and ideas from which the company can benefit

• A boosted reputation: Companies that offer internships to students from local schools can gain a positive reputation and increase their visibility among students, their families, and the community as a whole

• A larger pool of employee candidates: Although an internship may not come with a guaranteed offer of employment upon completion, the interns that a company trains expand the pool of potential employees. When former interns apply, they often have better chances of being hired because the company will not need to invest as much time into training them

 

What Are the Disadvantages of Internships?

Although most internships mutually benefit the business and the intern overall, there are potential disadvantages to be aware of before committing to an internship program. Some of the disadvantages are dependent on the individual intern’s or company’s circumstances.

For the Intern

Perhaps the biggest disadvantage for interns is low or no pay for the period of the internship. Even a paid internship will not pay as much as a position that requires more knowledge and experience. Since most internships are unpaid, a potential intern must weigh the costs against the possible benefits of the program. Unfortunately for some, the lack of pay for an extended period is a barrier to their ability to apply for or accept an internship. Additionally, because an internship does not guarantee a job at completion, many people simply cannot afford that long-term uncertainty, even if they choose to pursue secondary employment during the internship period.

For the Employer

An internship program requires a commitment from the employer of time and money. The more specialized the job, the more time the internship will take away from the professional assigned to supervise the intern. Because an internship is meant to be a learning experience in which the intern gains skills and experience for future employment, an intern’s supervisor has a duty to patiently instruct and oversee the intern’s assignments. Depending on the circumstances, multiple trainers could share the responsibility of supervising the intern to help alleviate the burden and allow the professional the time to complete his or her normal work.

Paid internships cost the company money in wages, but unpaid internships come with other costs. As mentioned, the intern’s supervisor will not have the same amount of time to dedicate to his or her normal workload. Unless the intern can perform assistive duties and learn quickly without mistakes, the company may suffer a short-term loss in productivity. 

What Is the Difference Between Paid and Unpaid Internships?

According to the United States Department of Labor, when a for-profit employer hires an intern, the intern may or may not be legally considered an employee of the company and, therefore, entitled to minimum wage and overtime under the Fair Labor Standards Act (FLSA). The answers to a seven-factor “primary beneficiary test” help to determine which party benefits the most from the relationship, thus indicating whether the intern should be paid. Though the test is flexible and each factor is considered by degrees, the factors to consider are the answers to the following:

1. Do both parties clearly have no expectation of compensation?
2. Does the internship offer training that is similar to that of an educational program?
3. Is the internship tied to the intern’s formal education through either integrated coursework or course credit?
4. Does the internship accommodate the intern’s academic schedule?
5. Is the duration of the internship limited to the time in which the internship offers the intern beneficial learning?
6. Does the intern’s work complement the work of paid employees while also providing the intern with educational benefits?
7. Do the intern and the employer understand that the internship does not entitle the intern to paid employment at the end of the internship period?

According to the New York State Department of Labor, the above questions can generally guide employers in determining whether an internship should be paid. Additionally, similar rules apply to not-for-profit organizations, and no employer is prohibited from offering a paid internship to students who will also earn college credit.

Are Unpaid Internships Legal in New York?

The only way for an internship to legally be unpaid is if an employment relationship does not exist between the intern and the employer. Using criteria from the United States Department of Labor and the New York State Department of Labor, employers can ensure that their interns are receiving educational benefits rather than employee benefits. A skilled labor and employment attorney with Schwab & Gasparini may be able to help determine if the internship is in compliance with the requirements for unpaid internships in New York.

Termination of an Unpaid Internship

Although not legally an employee, an unpaid intern is like an employee. Therefore, management can fire an unpaid intern for any of the same reasons he or she would fire a paid employee. These reasons can include failing to abide by company policy, making inappropriate comments toward colleagues, having poor hygiene or unsuitable attire, or being habitually tardy or absent for shifts as scheduled.

Quitting an unpaid internship should look the same as quitting any paid position. The intern should give a two-week notice and then continue the work as usual during that time. If possible, the intern should focus on completing assigned projects before the last day in order to part with the company on good terms.

Do Unpaid Interns Get a W2?

Because an unpaid intern is not an employee, the employer is under no obligation to provide him or her with a W2. The intern will not receive income from the internship, so the employer will not need to withhold or pay income taxes, FICA (Social Security and Medicare), unemployment taxes, or workers’ compensation insurance for the intern. Employers only pay these for actual employees or paid interns.

Contact a New York Business Litigation Attorney for Answers to Your Questions Today

Whether a company chooses to offer paid or unpaid internships depends on many factors. However, if the preference is unpaid, it is important to ensure that the internship meets the requirements for unpaid internships and clearly does not establish an employment relationship. If you have questions about the legal ramifications of these programs, consider reaching out to the experienced New York legal team at Schwab & Gasparini by calling (315) 422-1333 in Syracuse, (518) 591-4664 in Albany, or (914) 304-4353 in White Plains and Hudson Valley. 

-Louis U. Gasparini

Sun Jan 26 2025, 12:00am