Californiaâ??s labor department has issued updated guidelines on whether internships should be paid or unpaid, with the new rules giving employers slightly more latitude not to pay them.
Many wage and hour regulators maintain that interns must be paid if their work is of â??immediate advantageâ? to the employer, but the California agencyâ??s top lawyer advised that such an advantage can be offset â?? and the intern not be paid â?? if the employer provides close supervision and lays out money for training.

The DLSE regulator stated that interns could do occasional work done by regular employees, as long as it â??does not unreasonably replace or impede the education objective for the intern and effectively displace regular workers.â?

Over all, the guidance from the California Division of Labor Standards Enforcement was emphatic that for internships to be unpaid, they must be educational and predominantly for the benefit of the intern, not the employer. Therefore; there still arenâ??t going to be many circumstances where for-profit companies can have unpaid internships and still be in compliance with the law.

The federal government has established six criteria (which are also embraced by California) to determine when internships can be unpaid.

Wage-hour laws typically apply only to â??employeesâ? or an employment relationship. Properly classified interns escape minimum wage and other requirements because they are not considered â??employees.â? If considered employees, interns must be paid at least the minimum wage.

Criteria for Private Sector Internships

How does one tell an employee from an intern? The U.S. Department (â??DOLâ?) of Labor and the California Division of Labor Standards Enforcement (â??DLSEâ?) apply the same six criteria:

â?¢ The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
â?¢ The internship experience is for the benefit of the intern;
â?¢ The intern does not displace regular employees, but works under close supervision of existing staff;
â?¢ The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
â?¢ The intern is not necessarily entitled to a job at the conclusion of the internship; and
â?¢ The employer and the intern understand the intern is not entitled to wages for the time spent in the internship.

Consequences of Misclassification

In this time of enhanced regulatory enforcement, particularly at the federal level, it pays to get it right when it comes to unpaid internships. The price of misclassifying workers as interns rather than employees is very high. In addition to minimum wage and overtime for all hours worked, a host of penalties may apply under California law. These include a special penalty equivalent to the wages for failure to pay minimum wage, as well as assorted penalties for improper recordkeeping, late payment, missed meal periods or rest breaks, etc. Then there are the claims for improper exclusion from benefit plans and other contractual employee benefits such as vacation.

Human Resources 4U can help with interns or other wage classification issues.

Human Resources 4U is a full service Human Resources consulting company specializing in small and midsize businesses. Note: This article is presented with the understanding that we are not engaged in rendering legal advice. If legal advice is required, the services of a competent attorney should be sought.