How to keep your internships on the right side of the law

They’re an increasingly popular choice for employers, but what are the legal pitfalls? Ben Stepney and Guy Evans report

The use of internships is rising rapidly and becoming a common route into work, particularly for young graduates. In April, the Institute for Public Policy Research published a study suggesting that the number of internships has doubled since 2010. Of these, they estimate that one in five is unpaid. 

Public interest in unpaid internships has been steadily building, with concerns focusing on whether this is legal, and on the social mobility aspect, in the sense that those less well-off are not as likely to be able to afford a period of unpaid work.

Workers or volunteers?

Whether an unpaid internship is legal depends upon the nature, length and arrangements for each.

Some businesses consider interns to be volunteers, so they are not entitled to the minimum wage. But there are a growing number of employment tribunal cases where interns have successfully argued that they should be classed as workers, not volunteers, and so are entitled to be paid the minimum wage.

The consequences of failing to pay the minimum wage to interns who are classed as workers are potentially serious. The organisation could be required to pay up to six years of backdated minimum wage to each worker, fined and publicly ‘named and shamed’ as a business that fails to pay the minimum wage.

Even if you describe an intern as a volunteer, an employment tribunal could determine that they should in fact be classed as a worker based upon the arrangements in place and so are entitled to the minimum wage.

As a general rule, if the intern has to carry out tasks personally and follow instructions (rather than just shadowing someone), they are likely to be classed as a worker. 

The opportunities for lawfully having an unpaid intern are narrow, and getting narrower. If in doubt, seriously consider making sure interns are paid at least the minimum wage. Bear in mind that there are lower minimum hourly rates for those aged under 25, so this may not be as costly as you first think. 

There are some limited exceptions. Interns who are part of certain training schemes or are undertaking work experience as part of higher or further education may be exempt from the minimum wage.

If your interns are to remain unpaid, then ensure that they carry out a role that is not equivalent to an employee, where they are not required to perform specific tasks and where they are not paid or offered any kind of enticement. 

Traps to avoid 

  • Do not make any payments that could be seen as wages. 
  • If you pay expenses, only do so for actual receipted expenses.
  • Do not promise future employment or training opportunities in return for the internship.
  • Give the intern the ability to refuse tasks and choose when to work, so their arrangements look less like those of an ordinary employee.

Legally and socially, it seems the days of unpaid internships are numbered. Employment tribunals are increasingly finding that businesses should have paid the minimum wage to their interns. Indeed, new legislation has been proposed to limit unpaid internships to four weeks and public opinion is hardening against them because of their perceived effect on social mobility.

There have also been calls for HMRC, which enforces minimum wage compliance, to crack down on unpaid internships as a potential source of tax revenue. 

Given the legal and public relations risks, businesses that have unpaid internships should consider changing this practice. Doing so may lead to better quality candidates applying for your internships and potentially becoming employees in the future.

Ben Stepney is a senior associate, and Guy Evans a trainee solicitor, at Thomson Snell & Passmore