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Teen Works at Store for 10 Weeks Before Being Told His Position Was an Unpaid Internship

Retail Internship or Scammed for Free Labor?

The topic of unpaid internships has attracted extra media attention recently. Some nonprofit organizations and even some for-profit businesses offer unpaid internships as a chance for young people to get some work experience or earn college credit. Especially in highly competitive creative fields like art, music, fashion or media, unpaid internships are often a good way for young people to get a foot in the door and gain valuable contacts and “real world” work experience that can launch their careers. However, critics of unpaid internships claim that this work arrangement can never truly be “fair” and that all employees deserve cash compensation, even if it’s just minimum wage.

If your business offers unpaid internships, it’s important to clarify expectations to make sure you are treating people fairly and also to avoid violating labor laws. According to this news story from the UK, a teenager worked at a convenience store for 10 weeks before being told his position was an “unpaid internship.” The store owner contends that he was clear from the beginning that it was an unpaid internship, but the teen and his family claim they were under the impression that it was only unpaid for one week while he went through a trial period. The teen’s family is friends with the store owners, something that can commonly happen in small businesses where the owner may try to help a family member or friend, and result in a sticky situation both personally and professionally.

This story underscores a few very important points for small business owners who might want to offer unpaid internships or even allow friends and family to “help out” on occasion at the business:

Put It In Writing

It’s important to create formal employment agreements – in writing, not just an informal verbal agreement – at the start of any work period, even for (especially for) family and friends of the business owner. Without a written work agreement, you risk having a misunderstanding and making your business vulnerable to a lawsuit. It’s also a good practice to clarify expectations upfront: make sure employees understand the conditions of their employment, and clarify exactly what compensation they will receive.

Understand the Labor Laws

Unpaid internships are legal in certain situations, but there are a few complicated rules and “legal tests” to determine whether your company’s “unpaid internship” counts as a legal activity, or if it should be classified as paid work. According to the U.S. Department of Labor, there are six criteria that an unpaid internship must meet to qualify as a legal unpaid work experience:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Generally speaking, according to U.S. federal labor law, unpaid internships are meant to be “learning experiences” or “training programs” that benefit the interns more than the employer. If you have unpaid interns at your company, they should be getting a positive, fun learning experience similar to what they might get in a classroom environment – they should not be replacing your employees or doing the same work as an employee.

Various U.S. states might have additional laws about unpaid internships. Check with your state’s Department of Labor to make sure you are in compliance with your state’s regulations. For example, the New York State Department of Labor has additional rules and regulations related to the hiring and recruitment process for unpaid internships that are meant to protect the rights of interns and clarify expectations for employers.

Prepare Your Documentation

Before you hire your first unpaid intern, it’s important to have your documentation ready. Here are some resources and sample work agreements that your business can use – but be sure to consult an attorney if needed to make sure your work agreements are totally compliant with state or local labor laws in your location. The following documents are important to have when taking on an unpaid intern:

  • Unpaid Internship Agreement (With Confidentiality Clause)
  • Employment Agreement (For “At Will” Employment)
  • Employee Management Forms

Unpaid internships can be a great way for small businesses to get some extra help while teaching younger workers about your business and industry. It can be fun and rewarding to share your expertise and show interns how your business operates – but make sure that your unpaid internship program is correctly set up to be a learning experience that offers your interns a valuable boost in their careers and personal development, not just unpaid labor. You might find that the risks of running afoul of labor laws are too great – and it might be better to pay all of your interns a modest hourly wage. Education is hugely valuable, but it doesn’t pay the bills!

Have you ever used an unpaid internship program at your business? Or have you used informal unpaid work arrangements with family and friends? How did it work for you – what would you do differently? Leave a comment and let us know.

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Kabbage Team

The Kabbage Team is here to not only fund the small business loans you need, but to help you grow your business through free marketing tips, webinars, tools and more. Is there something you'd like us to cover or want to get your small business featured on our blog? Send us a note at content@kabbage.com.

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