Is it legal for a nonprofit organization to use unpaid interns?

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[Note: The Department of Labor guidance, Fact Sheet #71, discussed in this article has been superseded as it applies to the use of unpaid interns by businesses.  See the discussion of the revised policy here. The guidance as it applies to the use of unpaid interns by nonprofit organizations appears to be unchanged.]

As our last post explained, for-profit businesses are very limited in their ability to use unpaid interns legally. Unless the internship program meets six different criteria to qualify the intern as a trainee, the intern is an employee subject to the Fair Labor Standards Act or FLSA.

For nonprofits, however, there is a third possibility. The intern may qualify as a volunteer, in which case the intern is not an employee under FLSA and not subject to the minimum wage and overtime compensation requirements. The footnote to Fact Sheet #71 issued last year by the Department of Labor’s Wage and Hour Division recognizes an exception to FSLA for individuals who volunteer their time to nonprofit organizations for religious, charitable, civic, or humanitarian purposes, provided they do so freely and without expecting any compensation. In those situations, unpaid internships are generally allowable.

There are some limits, however. Perhaps most importantly, individuals who work in a commercial operation (such as a clothing store or a farm) operated by a nonprofit organization are likely to be deemed employees and therefore subject to the FLSA. That’s essentially what happened in the 1985 U.S. Supreme Court decision, Tony and Susan Alamo Foundation vs. Secretary of Labor. Although that case had the additional factor that the individuals who worked for the nonprofit also received benefits such as clothing and room and board, in my opinion it is likely the Court would have reached the same decision even if the individuals had received nothing.

In addition, the Wage and Hour Division has hinted that relevant factors might also include whether the intern works full-time and whether the intern displaces any employees. For example, in a 2006 opinion letter, in describing the exemption for volunteers, the Division stated,

“Typically, such volunteers serve on a part-time basis and do not displace paid workers or perform work that would otherwise be performed by employees.”

However, I’m not aware of any guidance to indicate that the Department of Labor will take the position that working full time, in and of itself, precludes an individual from being considered a volunteer.

Although the volunteer must work without any expectation of being paid, it is nonetheless permissible for the nonprofit to pay the expenses of the volunteer, to provide some reasonable benefits, and even to pay a nominal fee. In order for the fee to be “nominal,” the amount may not depend on the volunteer’s productivity or the number of hours worked. In addition, the fee or stipend should not exceed 20% of the amount it would cost the nonprofit organization to pay an employee to perform the same tasks.