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Unlike most people in the workforce, interns (of either businesses or nonprofit organizations) and volunteers (of nonprofit organizations) are not required to be paid for the time they spend working. Interns and volunteers are exempt from wage requirements. In the case of interns, the presumption is that compensation is provided in the form of valuable practical training. Volunteers are exempt from wage requirements in recognition of the social value of individuals giving their time freely to benefit society as a whole. Accordingly, any company may engage interns, but only nonprofit and social welfare organizations may enlist the help of volunteers. Nevertheless, employers must ensure that certain specific requirements are met in order to properly utilize the time and efforts of interns and volunteers on an unpaid basis.

Rules for Use of Interns at Nonprofit Organizations

In order to determine whether an intern or a student should be classified as a paid employee or an unpaid intern one must evaluate the factors in the relationship between the employer and the intern/student. In doing so, a determination can then be made as to which of the parties in the relationship is the “primary beneficiary”. If the student/intern is the primary beneficiary, then the relationship is likely to be classified as an internship. If the employer is the primary beneficiary, then employee classification is more likely. The Fair Labor Standards Act provides seven factors to be evaluated as follows: 

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. A promise of compensation is favorable towards making a determination for employee status whereas the lack of such promise suggests the opposite.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment. This includes clinical and other hands-on training provided by educational institutions. The more similar the internship is to providing training similar to an educational environment, the more likely it is that the individual will be classified as an intern.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit. Again the more closely tied, the more likely it is that the individual will be classified as an intern.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar. Lack of accommodation suggests a determination in favor of employee status.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning. The longer an internship endures beyond this period, the less likely it will be deemed an internship.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern. The more complementary the work, the more likely the relationship will be classified as an internship.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship. To the extent that such an internship is conducted with entitlement to an eventual paid job, the relationship is more likely to be classified as employer/employee.

None of these factors is determinative. Rather, all of the unique facts and circumstances of a particular case must be evaluated in order to determine the primary beneficiary and thus the true nature of the relationship.

Rules for Use of Volunteers at Nonprofit Organizations

The following factors are taken into consideration in determining whether a worker may qualify as a volunteer:

  • Nature of the entity receiving the services (nonprofit better than for-profit)
  • Compensation of any sort, such as money, room & board, perks, etc. (best if no compensation)
  • Expectations of benefits in the future (best if no expectation)
  • Whether the activity is less than a full-time occupation (part-time better than full-time)
  • Whether regular employees are displaced (best if no regular employee is displaced)
  • Whether the services are offered freely without pressure or coercion (best if freely offered), and
  • Whether the services are of the kind typically associated with volunteer work.

Although nonprofits may offer volunteers a stipend in exchange for their work, caution is advised in determining how much to offer to avoid inadvertently causing the worker to be considered an employee. This is because pay that is tied to productivity or to the amount of time spent working may be considered indicative of an employment relationship, as is anything more than "nominal" compensation.

Nonprofit organizations may wish to take advantage of their ability to use unpaid workers to further their missions, but in doing so should take care to ensure that such workers are appropriately characterized. It is recommended that nonprofits use written agreements when engaging volunteers to make sure there is no mistake about expectations, as well as for liability protection.