By Eric D. Turner, CPA, Business Assurance & Advisory Services Manager | Not-for-Profit Team
Many not-for-profit organizations are often bolstered by the influx of interns whom bring with them a buzz of energy and fresh ideas, while providing the intern with an opportunity to build job experience, enhance their network and professional references, and build upon their resume. The not-for-profit can further benefit by using an internship program to discover new future leaders. Further, interns are often seen as an inexpensive method for increasing work capacity, especially in the case of unpaid interns. However, there are a few things every not-for-profit should know in order to avoid transitioning from inexpensive assistance to a major liability.
The Fair Labor Standards Act (FLSA) is the leading federal legislation over the matter, however, individual state laws should be adhered to as well. The FLSA requires minimum wage and overtime compensation to be paid to all employees or anyone that is interpreted as an employee. The FLSA has a six-prong test to determine if an unpaid intern is considered to be a trainee, and thus not requiring compensation and/or employee benefits.
Each of the following items must be met in order to qualify as an unpaid intern:
- The internship experience must be for the benefit of the intern.
- The intern must receive training similar to that which would be provided in an educational environment.
- The organization providing the training derives no immediate advantage from the activities of the intern.
- The intern must not displace regular workers.
- The intern is not entitled to a job at the conclusion of the internship.
- There must be an upfront understanding between the organization and the intern that the intern is not entitled to wages.
Of the six requirements, not-for-profits should give special attention to item number three. For example, according to the language provided by the FLSA, if an intern were to help with a fundraising event or special program, then they would no longer qualify for the unpaid designation and must be compensated. A secondary option for not-for-profits would be to solicit this type of work from an unpaid volunteer. An unpaid volunteer as defined by the Department of Labor is a designation given by a religious, charitable, or other not-for-profit organization where individuals donate their services for public service, religious or humanitarian objectives, usually on a part-time basis and without the expectation of pay.
Certainly it is worthwhile for any not-for-profit using unpaid interns or volunteers to make sure that these parties are properly classified. Misclassification can be a costly mistake leading to the payment of overtime, back wages, back employment taxes, attorney fees, and consideration of further employee benefits such as health insurance.
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.