Hiring interns for free labor is a no-no

Summer interns are ripe for exploitation.

They're desperate for real-life experience to help them land a permanent job, at a time when the economy is slowing and positions are scarce. Many are willing to work for free or below-market rates, just to get a foot in the door.

But that doesn't mean employers should take them up on the offer.

"It's very tempting to try to come up with unique ways to get more out of your company, but the way to do it is not to bring in people who are unpaid," said Jay Zweig, a labor lawyer at Bryan Cave in Phoenix. "An internship, to be unpaid and legal, needs primarily to be a learning experience for the intern and not something where the intern is expected to produce work product that is going to benefit the employer."

Take Kelly McCausey, owner of Mom's Talk Network in Portland, Mich. McCausey found herself inundated with requests for podcasting production and coaching on how to start a home-based business. But she couldn't afford to hire an employee and spend time training her, not knowing whether she'd have steady income in the future.

"It became impossible to take on new clients," she said. "I thought, 'What if I could trade training and coaching for work and study from an individual?' "

McCausey found another at-home mother who wanted to learn Internet marketing and podcast production, and they agreed to a 10-week period of training and unpaid work, 10 to 20 hours a week.

"Once I finished teaching her, I had her do the work I had for the clients for the rest of the summer," she said. The arrangement pleased both sides so much that McCausey wrote a guide called "Profiting From Internships" that she sells on her Web site.

She acknowledges that she didn't consult a lawyer, either in designing her own internship or in writing the guide.

"It never once occurred to me that I needed to worry about labor laws," McCausey said. "I can't tell you whether I broke a labor law."

That's a big mistake, Zweig said. "All it takes is one disgruntled intern, or their parent or spouse or friend, to call the U.S. Department of Labor, and the company who follows this type of exploitative advice is toast," he said. "The government is becoming increasingly aggressive in hunting down these situations."

Numerous complaints

The federal Labor Department takes complaints on the Web, in local district offices, and through the toll-free number 1-866-487-9243 (4-USWAGE). Officials will investigate whether internships violate wage and hour laws, or other labor laws.

The department collected $221 million in back wages for workers in fiscal 2007, and received 24,950 new complaints about wage and hour violations. The government doesn't specifically track whether a complaint is related to an internship.

Employers may be exempt from federal labor law if they engage in no interstate commerce or don't operate for a business purpose, such as a charitable nonprofit. When in doubt, contact the Labor Department. And remember that state law may apply, including state minimum wage, even if federal law doesn't.

The bottom line: You can't just call people interns to avoid paying them, said Rosemary Gousman, Murray Hill, N.J.-based regional managing partner at Fisher and Phillips, a labor-law firm.

"Unless you're part of a formal school program, if the intern is doing anything other than strictly shadowing one of your employees, they need to be paid at least minimum wage," Gousman said.

Walking a fine line

At Pop Art, an Internet marketing agency in Portland, Ore., interns begin the summer watching over the shoulder of an employee, said editorial director Thom Schoenborn. They're unpaid, although they may receive a transportation card or parking subsidy.

"This is a particularly effective way to do things when something they're working on is pretty technical, where it involves a lot of analysis," Schoenborn said.

As the interns learn more about the business, they may be able to do revenue-producing work.

"If they get into a range where they're starting to do any billable work for us, we're absolutely going to pay them," he said.

Employers must be clear about the demarcation between the unpaid internship and when the student joins the payroll, Zweig said. Make sure to document the change in status, and follow the minimum wage and other employment laws, he said.

At least two Pop Art interns ended up getting full-time jobs at the agency after their internships ended, Schoenborn said.

Other drawbacks

Even paid internships can violate employment laws, if they're not properly structured, Zweig and Gousman said. Interns must receive at least the minimum wage, and if they work more than 40 hours in a week, they must get overtime pay.

Employers looking to profit from internships should be warned that they can be as much work as they are gain.

"One of the dangers of internships is the employer says, 'I can get some cheap labor for the summer,' and doesn't realize you almost have to give more than you get," said Jim Roop, president of Roop and Co., a public-relations and graphic-design firm in Cleveland. "The No. 1 problem would be not being able to recognize the amount of time it takes to direct kids."

While college students today are very bright, they need close supervision and direction during their first experiences in the working world, Roop said. The ideal is to give an intern a clearly defined project so the person can accomplish something concrete over the summer.

The most successful internships have the student assigned to a single employee, who will carve out time for training and mentorship, said Diana Nash, director of career development and internships at Marymount Manhattan College in New York.

But in reality, students are so desperate for internships that some end up being gofers, getting coffee and dry cleaning. It may be worth it for the student to make professional contacts in a competitive field such as entertainment, Nash said.

"In many businesses, that's the name of the game," she said. "They might need to pay their dues, and they can make that choice."