Whether or not interns are considered employees under the various employment and tax laws that may apply, initially, turns on whether the hiring enterprise is a for-profit business or a nonprofit business. Nonprofit businesses enjoy greater legal flexibility when retaining unpaid interns that are not considered employees under all the labor and employment laws. However, even nonprofits must ensure some key requirements are met before they can retain unpaid interns.
NON-PROFIT BUSINESSES
Students working in a not-for-profit organization or institution are exempt from the State Minimum Wage Act and the Minimum Wage Order for Miscellaneous Industries, so long as the organization is organized and operated exclusively for charitable, educational or religious purposes, the employee attends an institution of learning with courses leading to a degree, certificate or diploma, or the employees are completing residence requirements for a degree such as those required of medical and pharmaceutical students.
The work experience need not fulfill a curriculum requirement or even relate to the student’s field of study. Persons continue to be exempt during the periods when school is not in session (e.g., during the summer) if they were students during the preceding semester and have not yet graduated or completed the educational requirements of the program.
FOR PROFIT BUSINESSES
In general, an intern or a trainee will not be considered an employee (and, therefore, “exempt” from coverage of most employment laws and wage laws) unless each of the following criteria are met:
- The training, even though it includes actual operation of the employer’s facilities, is similar to training provided in an educational program. For example, the internship program builds on a classroom or academic experience – NOT the employer’s operations.
- The training is for the benefit of the intern.
- The intern does not displace regular employees, and works under close supervision.
- The activities of trainees or students do not provide an immediate advantage to the employer. On occasion, operations may actually be impeded.
- The trainees or students are not necessarily entitled to a job at the conclusion of the training period and are free to take jobs elsewhere in the same field.
- The trainees or students are notified, in writing, that they will not receive any wages and are not considered employees for minimum wage purposes.
- Any clinical training is performed under the supervision and direction of people who are knowledgeable and experienced in the activity.
- The trainees or students do not receive employee benefits., such as health and dental insurance.
- The training is general, and qualifies trainees or students to work in any similar business. It is not designed specifically for a job with the employer that offers the program. Skills offered through the training must be useful and transferable to any employer in the field.
- The screening process for the internship program is not the same as for employment, and does not appear to be for that purpose. The screening only uses criteria relevant for admission to an independent educational program.
- Advertisements, postings, or solicitations for the program clearly discuss education or training, rather than employment, although employers may indicate that qualified graduates may be considered for employment.