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Government renews focus on unpaid internships in light of Taylor review

13 Feb 2018 By Miriam Kenner

‘Incremental approach’ to stamping out exploitation as proposals centre on HMRC action

Vowing to crack down on “sectors where unpaid interns are doing the job of a worker”, the government said it has written more than 550 warning letters to companies over the last three months, as it responded to the Taylor review on the modern labour market last week.

It will ask HMRC to direct minimum wage enforcement work towards firms using unpaid interns, as "exploitative unpaid internships should not exist and we will work to eradicate these”. Prevalent sectors include the media, performing arts, law and accountancy, where unpaid internships are a growing problem.

HMRC has told employers that interns classed as workers must be paid at least the national minimum wage (NMW), unlike genuine volunteers.

Interns classed as either workers or employees must be paid the base amount for either the NMW or the national living wage, regardless of experience or internship length.

“The government is actively engaged in a wider effort to crack down on companies that are exploiting a ‘blind spot’ in existing employment law – categorising workers as self-employed, which negates several obligations and protections for the employee,” said Adam Pennington, solicitor at Stephensons.

“Internships are sometimes called work placements or work experience. These terms have no legal status on their own. The rights that anyone taking up such a position has depend on their employment status – if they are classified as a worker, volunteer or employee.”  

As to whether the government has gone far enough, Ben Lyons, co-founder of Intern Aware, told People Management that “paying interns is a vital step to making workforces more diverse and inclusive, but sadly the government's proposals represent a piecemeal solution to the problem of unpaid internships. 

“Employers and young people need legal clarity, which is why the government should require internships lasting at least four weeks to be paid. A test of Theresa May's commitment to social mobility will be whether the government supports the proposal of Conservative peer Lord Holmes for a four-week limit to unpaid internships."  

Having commissioned Taylor’s Good Work: The Taylor Review of Modern Working Practices in 2016, the government last week vowed “to improve the interpretation of the law and the enforcement action taken by HMRC in this area to help stamp out illegal unpaid internships".

Taylor noted “significant media interest in the issue of internships, particularly prevalent in certain industries and sectors”, adding: “It is clear to us that unpaid internships are an abuse of power by employers and extremely damaging to social mobility.” But he resisted a call for any legal changes.

“We believe this is unnecessary. We believe that the law is clear as it currently stands. If a person is obtaining something of value from an internship, they are most likely to be a worker and entitled to the national minimum or living wage.” 

The government has yet to action the Institute for Public Policy Research’s (IPPR) recommendation in April 2017 that it consider legally separating the term ‘internship’ as it had with ‘apprenticeship’, so that it would only to apply to paid placements and training opportunities.

New research last month by social mobility charity the Sutton Trust revealed that for those who cannot afford to work for free – and those without networks to secure a placement informally – internships are a barrier to the best careers and to social mobility.

The trust found that more than 40 per cent of young people who undertake internships do so unpaid. Of around 10,000 graduates carrying out an internship at six months post-graduation, 20 per cent were unpaid. 

Even with transport costs provided, the lowest cost of a London unpaid internship exceeds £1,000 a month, with rising rent and inflation, or £827 in Manchester. Such opportunities to gain valuable work experience are therefore beyond many on low and middle incomes.

Despite this, organisations continue to offer unpaid internships, and internships that are not advertised. In 2017, only 11,000 internships were advertised online out of an estimated 70,000, the IPPR said.

Meanwhile, internships offered by top graduate recruiters have risen each year since 2010 by as much as 50 per cent, according to the IPPR. 

Nearly half of these employers said candidates who lacked work experience through an internship would ‘have little or no chance of receiving a job offer’ for their organisations’ graduate programmes – regardless of academic qualifications.

Some employers were unaware that their interns should be paid, but others were exploiting the lack of clarity in the law to avoid paying them, the Sutton Trust found. 

The trust has called for tighter laws to ban unpaid internships lasting more than four weeks, and for internships longer than one month to be paid at least the NMW – but preferably the living wage of £8.75 hourly, or the London living wage of £10.20.

Calling for internship positions to be advertised publicly, rather than being filled informally by friends and family of staff, the trust said: “This practice locks out talented young people without connections, limiting their opportunities and hampering their social mobility. All internships should be advertised publicly, so that, regardless of connections, all potential applicants can apply.”

It said recruitment or selection processes for internship candidates “should be fair and transparent – upholding the same standards of recruitment as other jobs. All internships should be awarded on merit to the best candidate, not based on personal connections.” 

In 2017, the House of Lords debated proposals to ban unpaid internships and work experience of more than four weeks, after Lord Holmes of Richmond’s private member’s bill. If this becomes law, it would outlaw longer stints of unpaid work experience and internships.

Holmes said: “Unpaid internships leave young people in a catch-22 situation: unable to get a job because they haven’t got experience, and unable to get experience because they can’t afford to work for free.”

The Unpaid Work Experience (Prohibition) Bill, however, has yet reach the committee stage, after its second reading in October 2017. 

Ruth Buchanan, partner at law firm Ashurst, told People Management that the government appeared to be taking an “incremental approach to addressing the Taylor review's recommendation that exploitative unpaid internships must be stamped out. 

“It is important that, together with the sending of warning letters, the government has also indicated that it will instruct HMRC in the coming year to focus its NMW enforcement efforts on the use of unpaid interns through intelligence-led enforcement activities. By no means are all internships publicly advertised and so, while warning letters make sense, they can only ever be sensibly seen as a small part of the solution.

“We will have to wait to see whether HMRC becomes more active in this space in other ways, including from an enforcement perspective, before the success of the government's approach can properly be measured.

“The government has said that if its initial response proves inadequate, it will review the policy and the existing legal framework.” Buchanan added that the bill itself could have some “drastic” effects.  

“Coupled with a strong push in the enforcement domain, a focus on educating people about the existing law would be preferable to introducing another status definition into what is already a complicated area,” she told People Management

The government has omitted a plan to tackle the core problem of the law – that neither interns nor smaller employers, perhaps without a developed HR function, understand what the law is, said Lyons.

Interns are in a vulnerable position and are unlikely to report their employers to HMRC, risking the reference or job that was their reason for interning in the first place, particularly if they are unsure of their legal rights. “There needs to be clarity in the law – for young people and employers,” Lyons said.

Intern Aware’s research with YouGov found that 65 per cent of employers would support a four-week limit to unpaid internships, and that employers would not be less likely to recruit interns following its introduction. 

The new proposals repeat a policy under the coalition government, when Jo Swinson was employment minister, Lyons added.  

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