We’re a nonprofit that provides counseling services to disadvantaged community members. For a number of years, psychology students from a local college have served as interns, shadowing and assisting our counselors in their day-to-day activities to get an understanding of how the professionals do their job. These internships were unpaid, but the students did receive academic credit for the semester they were with us. We also paid their commuting expenses. Our counselors greatly valued and came to rely on their service.
Recently, however, the college made the decision to end that academic program, and no students will be referred to assist our counselors.
As a result, we have had a number of these students approach us and ask if they can still serve as interns even if the school is now out of the picture and no academic credit will be provided.
If we can continue to hire these students, should they be paid a stipend for this work?
Please let us know our options—our counselors are losing their minds about this.
The best place to start to answer your questions is with the US Department of Labor’s guidance about unpaid interns issued in January of 2018.
In this guidance, the Department of Labor issued a seven (7) factor test to determine if a worker can be properly classified as an unpaid intern.
Those factors are:
- The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
- The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
- The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
- The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
- The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
- The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship
Based on these factors, it looks like you did classify these students properly as interns. But things may be different now that the college has abandoned this program.
Internships and Academic Programs
As you see, one of the critical factors of this analysis is that the internship needs to be tethered to an academic program in duration, work performed, and what the student intern gets in return for their work—either academic credit or service as part of the integrated coursework of the academic program.
Without these elements underpinning the work of interns at your nonprofit, there is a risk that these elements would not be satisfied and that any student performing these services could be determined to be an employee. If that happens, failure to pay the student at least minimum wage could lead to serious consequences.
On the issue of paying stipends for such work, be careful, because this might not alleviate the risk. As noted in the guidance, an intern can have no expectation of receiving any compensation in exchange for their work. In this sense, interns are very much like volunteers, who, likewise, cannot receive or expect to receive compensation for their services. Of course, they can, and should be reimbursed for expenses.
Internships and Stipends
A “stipend” if paid at all, should be truly “nominal” and not be in an amount that might give the appearance to be compensation for the work done. The Department of Labor has suggested that a volunteer or intern who is paid a stipend of $500 or more must be treated as employees and failure to do so could lead, again, to those serious consequences.
In summary, using “interns” not linked to an academic program, or paying them more than a nominal amount that “looks like” compensation for their work brings serious risks that these students are, in fact, employees.
A final point needs to be made about the Department of Labor guidance. The guidance is ostensibly designed to be used in the context of interns being used in the “for-profit” workplace. Some have interpreted this as meaning that the 7 factors do not apply to nonprofits.
However, the guidance contains a footnote that says:
Unpaid internships for public sector and nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible.
It would seem to be prudent, and far less risky, to interpret the footnote to indicate that the 7 factors should be applied by nonprofits to properly evaluate if the use of interns in their agencies is appropriate.
Volunteering as an Alternative
Another way to take advantage of the students’ strong desire to serve your nonprofit is to consider permitting the students to volunteer their services. In many ways, this would be handled in same way you managed the students as an interns. You would not be permitted to provide compensation for those “volunteered” services, and while you should reimburse the students for any out-of-pocket expenses incurred in doing this work, you should exercise the same caution about paying stipends noted earlier. If you have an ongoing volunteer program, you could have the students brought into that program after the academic program ends.
Another precaution to take is making sure the students are not performing any activities that might be classified as “commercial services.” This would include, as just one example among others, having the student work as a cashier in a thrift store or other type of retail business your nonprofit operates. The Fair Labor Standards Act and a number of state labor boards find such work not to be “charitable or humanitarian” in the nature that is required to allow the worker to volunteer, and you would be required to pay them as an employee of a commercial employer.
From your description of the work that the students are enthusiastic about continuing, the risk is low that the work would be found to be “commercial,” but caution is always recommended, and a legal opinion on this point would clarify the degree of risk.
Of course, if the service the students provide is as valuable to your nonprofit as you describe, and compensation is something the student needs, a good solution is to hire and treat the students as temporary employees and pay minimum wage for the semester. This way you have the dual benefit of reducing the employment risk and benefiting both the students and the counselors.
This column does not constitute legal advice.
Mike Bishop is a member of the State Bar of California and has been admitted to practice in a number of Federal District Courts in both California and Ohio. During his legal career, he worked for 32 years with a Sacramento law firm where he focused on employment litigation in both State and Federal courts. During that time, he defended employers in litigation. In 2016, he began his work as an Employment Risk Manager for the Nonprofits Insurance Alliance, assisting nonprofits in evaluating employment risks. He lives in Lakewood, Ohio and is a graduate of the University of California, Davis with a Bachelor’s degree in Political Science, and a 1982 graduate of the University of the Pacific, McGeorge School of Law.