The Hawaii Department of Labor and Industrial Relations (DLIR) recently rolled out a Volunteer Internship Program (VIP) that was developed by Governor Lingle in an attempt to stimulate job growth in the state. In brief, the program allows individuals that are currently looking for a job, especially those receiving unemployment benefits, to obtain workforce training. However, as the area of workplace volunteers and interns is a complicated one for employers, we urge our clients to educate themselves about the rules. Inappropriately classifying someone as an unpaid volunteer or intern can carry significant liability.
Both federal and state law provide minimum wage, overtime, and other protections to employees. The definitions of an “employee” are sometimes confusing. Typically, an “employee” is anyone who is “employed by an employer.” To “employ” someone is defined as “to engage, suffer, or permit to work.” What this means is that an employer can create an employment relationship not only by proactively requesting that the person perform services, but also by allowing the person to perform services that benefit the employer. It can be a gray area. To further complicate matters, just because an individual agrees to work without pay, does not necessarily exempt the employer from the liability to pay wages. Workers are not free to waive their legal rights to minimum wage or overtime.
Hawaii takes its lead from the federal Fair Labor Standards Act (FLSA) in defining what constitutes a “volunteer.” In administering the FLSA, the federal Department of Labor (DOL) has maintained that in certain circumstances, an individual who intends to donate his/her time (usually on a part-time basis) purely gratuitously as a volunteer to a religious, charitable, or non-profit organization may be classified as a “volunteer” as long as the individual intends to volunteer his/her services for public service, religious, or humanitarian objectives, not as an employee, and without contemplation of pay. However, under the FLSA, a worker may not volunteer his/her services to a for-profit, private sector employer.
Too often, employers hire students and make the assumption that because they’re attending school and the job will provide for some level of instruction and training, the students can be unpaid interns. Unfortunately, in most cases, these employers are violating federal and state wage and hour laws, even if the students are happy to work for free.
Again, the legal definition of an unpaid intern is quite narrow. The DOL uses the following 6-factor test to determine if interns are exempt from minimum wage and overtime coverage:
1. The training, even though it includes actual operation of the employer’s facilities, is similar to that which would be given in a vocational school;
2. The training is for the benefit of the trainees or students;
3. The trainees or students do not displace regular employees, but work under their close observation;
4. The employer derives no immediate advantage from the activities of trainees or students, and on occasion the employer’s operations may be actually impeded;
5. The trainees or students are not necessarily entitled to a job at the conclusion of the training period; and
6. The employer and the trainees or students understand that the trainees or students are not entitled to wages for the time spent in training.
Please note that in applying and enforcing the above, the bar has been held quite high. Note criteria #3 above, which would mean that if you hire an ” intern” in lieu of an employee in a regular job, you will probably fail the test. Note that #4 requires that the employer derive no immediate benefit from the work being done by the interns and may even need to show that having the intern actually caused a disruption to business operations!
While there are formal internship and apprenticeship programs in Hawaii, employers need to be aware that the above factors will need to be respected in order for the internship to be legally unpaid.
For purposes of workers’ compensation, anyone rendering services, regardless of being called an employee or an intern, is presumed to be an employee and eligible for workers’ compensation benefits. Additionally, unless the company can prove that the individual meets the narrow definition of “volunteer” described above, he/she will most likely be entitled to workers’ compensation benefits in the event of an injury.
This new program does in fact allow employers to hire interns without pay. The internships are limited to 16-32 hours per week for a minimum of 4, but no more than 8 weeks. Employers are not required to hire the intern upon successful completion of the program, but the hope of the program is that they will want to. Employers need to keep in mind that this is a formal program administered by the DLIR who will approve employers’ written requests to participate and will also pre-screen the interns. Please be aware that the DLIR still requires participating employers to design a training program that is in line with the DOL’s 6-factor test mentioned earlier in this article.
In order to be eligible, the employer must also meet the following criteria:
1. Is in good business standing with the State of Hawaii;
2. Is up-to-date on all state and federal taxes;
3. Is not in a high-risk industry or occupation such as window washers, explosives transporters, machine operators, construction workers, or hazardous materials workers;
4. Is in the private sector;
5. Is not requesting VIP internship slots in occupations with DLIR-recognized apprenticeship programs; AND
6. Is not requesting VIP internship slots that displace current workers or infringe on the promotion of regular workers.
To be eligible for the internships, the worker:
If currently receiving unemployment benefits, must not have exhausted his/her 26 weeks of benefits; OR
Must be seeking full-time work and must be registered in HireNet Hawaii.
NOTE: Under this program, the workers will not be considered employees. If injured, the intern will have the same medical coverage as state volunteers as described inHawaii Revised Statues 386-171. We suggest that you get clarification from the DLIR on this topic and discuss that matter with your workers’ compensation insurance carrier.
Interested employers should review the details of this program at the DLIR’s website:Hawaii’s VIP Program.
In summary, we urge our clients to be very cautious in this area. Misclassifying a worker can create significant liability, which may subject a company to penalties, back pay, overtime, and unpaid employment taxes that can go back as far as 2 or 3 years.
If there is any doubt as to the validity of the worker truly being a volunteer or an intern, a safe approach would be to pay the person at least minimum wage, or perhaps even the sub-minimum apprenticeship wage that is permissible under federal and state law in very narrowly defined circumstances.
Audit all existing volunteers and interns that are currently providing services to your company in light of the DOL 6-factor test.
Correct any unpaid internships if necessary by placing the person on payroll and making good for back wages owed.
Analyze your hiring needs and submit a formal application to the DLIR if you want to pursue the VIP Program (Employer Application).
Do NOT assume that you can hire a student for the summer or hire someone who is currently receiving unemployment benefits and simply not pay the person.
As always Vantaggio is here to help you not only with compliance, but any of your HR needs. Please call us if you require help in establishing or administering an internship program.
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