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Note: This brief article shares general information about
legal requirements for internship programs. If you have specific
questions about how state and federal statutes might apply to your
particular situation, we recommend seeking expert guidance from an
attorney who specializes in employment law.
With the U.S. economy in recession, businesses of all types are
looking for ways to reduce expenses. In a design firm, payroll is
the largest expense by far. One popular strategy for reducing
payroll costs is to seek out free labor in the form of student
interns. However, design firm owners need to be aware that a number
of federal and state laws apply to unpaid internship programs. If
certain criteria are not met, then interns must be paid.
A complaint by an intern seeking compensation can trigger an
audit by the Wage and Hour Division of the U.S. Department of Labor
(DOL) or your own state's Division of Labor Standards. If a
complaint is filed and an audit reveals a significant violation of
the law, the penalties against your design firm can be severe. You
may be on the hook for double the unpaid amount owed to that
individual worker (and any other workers in the same situation)
plus court costs and legal fees.
Because of these potential problems for employers, an intern
program should not be launched or administered in a haphazard
fashion. This article will help you understand the essential legal
requirements that must be met.
Let's start with some definitions. What do we mean by an
internship? An intern is a professional in training. An intern does
not yet have the knowledge and experience necessary to be fully
useful in the studio. Internships provide supervised hands-on work
experience within a student's field of interest. Internships are
short-term (usually one semester) and the work schedule is
typically part time so that it does not interfere with class
An intern is not a volunteer. DOL regulations define a
volunteer as an individual who provides services to a nonprofit
organization or public agency for civic, charitable or humanitarian
reasons. An intern working at a for-profit company does not fit
It's also important to note that an intern is not a
freelancer. The nature of the work relationship does not meet
Internal Revenue Service guidelines for independent contractor
Setting up an unpaid internship can be great for your company's
finances but, at the same time, there is a downside for the
student: no compensation for labor, no staff benefits like paid
vacation time, and no unemployment benefits after the internship
An internship also imposes responsibilities on the firm in terms
of education and supervision, and laws are in place to protect
workers from potential exploitation. While an internship can
benefit both the firm and the intern, neither should consider it a
form of uncompensated indenture.
The nature of your company's internship program must be
primarily educational. If it's not, you run the risk of being found
in violation of the Fair Labor Standards Act (FLSA), which applies
to all companies with two or more employees and annual sales of at
least $500K. If the program is not essentially educational, your
unpaid interns will be classified as employees, meaning (among
other things) they are entitled to the federal minimum wage. The
FLSA establishes six requirements for unpaid internships:
Ideally, your unpaid internship program should meet all six of
these criteria. In practice, however, the last requirement can be a
bit of a challenge. For the experience to be educationally valid,
an intern needs to participate actively in the work of the company.
At what point does this constitute an “immediate advantage” for the
firm? Several DOL rulings seem to suggest that, as long as the
internship is a prescribed part of an educational curriculum and is
predominantly for the benefit of the student, the mere fact that
the employer receives some benefit from the intern's services does
not make the intern an employee for purposes of wage and hour law.
In short, an assessment will be made about the spirit of the
internship program as a whole.
In addition to the federal requirements we've been discussing,
some individual states have imposed restrictions of their own. Two
examples are California and New York. For details, you need to
check with the Division of Labor Standards in the state where you
are located. Some states require proof that the unpaid intern is
receiving academic credit for the work. Some also specify that
internships are subject to state workers' compensation insurance
If your internship program does not adequately meet federal and
state requirements, then the intern will be a paid employee. The
level of pay will, of course, be lower than that of more
experienced staff members. However, the FLSA requires you to pay at
least the federal minimum wage (currently $6.55, but that rate will
increase to $7.25 in July 2009). Don't forget that some states and
cities have additional pay requirements (for example, the minimum
wage in California is $8.00 per hour, but in San Francisco the
minimum rate is $9.79).
Paid interns are also entitled to overtime pay when they work
long hours. Interns do not qualify for the “Creative Professional”
exemption that applies to more experienced designers. To be exempt,
an employee must be involved in work requiring some degree of
autonomy and self-direction. Fully trained professionals work
without close supervision and consistently use independent
judgment. This is not the case with any intern.
A well thought-out internship program creates a relationship
between the design firm and the student that is mutually
For the student, an internship is a great way to learn by doing.
It provides exposure to the work environment and the complex
challenges of “real world” design projects. It enhances the
student's résumé and presents a valuable opportunity to gain
references and network contacts. It also assists in the completion
of a college degree by providing either pay or academic credit.
At the same time, design firms benefit greatly from being
exposed to fresh ideas and new perspectives. And, yes, unpaid
internships also help to reduce payroll costs!
From the U.S. Department of Labor, Employment Standards
Administration, Wage and Hour Division:
From the U.S. Department of the Treasury, Internal Revenue
Shel is a graphic designer who is active on the business side of professional practice. He has solid experience managing the operations of leading creative firms and guiding them through periods of accelerated growth and rapid change. He has served as director
of operations for MetaDesign San Francisco and as vice president of operations for Clement Mok. He provides management consulting services to a range of creative firms in both traditional and new media. Shel has served on the national board of the Association
of Professional Design Firms and as the president of AIGA San Francisco. He has written and lectured on many topics related to design management and teaches Professional Practice at the Academy of Art in San Francisco, the California College of Arts, and the
University of California.
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