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Internal Affairs

Do unpaid interns sound like a good source of free labor? Think again!

Your brainstorm about relieving your overworked employees without additional costs sounds flawless: Bring in some students from the local college as unpaid interns, promise them valuable experience and perhaps some college credit, and put them to work on routine chores. Better think twice, though, or you'll risk running afoul of the Fair Labor Standards Act (FLSA).

A public relations agency in Atlanta learned the hard way after billing clients for work performed by its interns. The U.S. Department of Labor investigated and found the agency had violated one of the six criteria for distinguishing interns from employees: The business must not gain immediate advantage from the interns' work. The Labor Department extracted a settlement requiring the agency to pay interns $31,520 in back wages and to pay current and future interns the federal minimum wage.

Donald T. O'Connor, an attorney with law firm Buchanan Ingersoll PC in Pittsburgh whose labor and employment law practice focuses on wage and hour issues, notes that interns can be ideal workers--hungry to learn, eager to make good impressions and willing to perform the most menial tasks. And an internship program gives your company a pool of potential employees who already know your business. "You can see how they perform and how they take instructions," O'Connor says. But, he adds, it's a mistake to think of interns as cheap labor.

Unless your internship program is essentially educational, your interns may look suspiciously like employees, who are entitled to the federal minimum wage. (The FLSA, which established the minimum wage and overtime requirements, applies to all companies with two or more employees and annual sales of at least $500,000.)

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This article was originally published in the November 1997 print edition of Entrepreneur with the headline: Internal Affairs.

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