Our thoughts on the world of employment law - and beyond.

Do unpaid internships really "favour the rich"?

You may have seen coverage of the Sutton Trust's research into unpaid internships this week. Their findings were that the cost of working for nothing rules out all but the wealthy and that interns should be paid the minimum wage. If, as they state, an unpaid internship can cost an individual £926 a month in London or £804 in Manchester, how many students can afford to take up such positions? 

If you search a little more, polarising views appear about the pros and cons of internships – both for employers and for students. "MPs vote to back call for end to unpaid internships" writes the BBC, whilst also revealing "MPs secretly hiring unpaid interns"!  Meanwhile, we are told that HMRC is targetting employers who engage unpaid interns, but that students themselves are applying in droves for unpaid internships in order to get valuable work experience which they believe will boost their chances long term of getting a job in their chosen sector. 

The findings of the "High Fliers" study last year of more than 18,000 university leavers indicated that graduates who had internship experience were three times more likely to land jobs. They found that more than one in three students had carried out work experience or internships with a prospective employer and in some universities this was above three-quarters of students. 

In such a competitive market, internships appear to be here to stay. Across the pond, our American cousins embrace internships as a necessity for their CVs and we are fast catching up. Certainly students want them and in increasing numbers students are prepared to forgo a year's travelling for a few months' valuable work experience if they can secure an internship. However, what do employers need to be aware of in order to ensure that they give students the ability to get valuable work experience whilst also steering clear from damaging headlines condemning them for promoting either 'slave labour', or 'social cleansing' by only offering internships to those desperate enough, or wealthy enough to be able to work for nothing. 


"Work experience" or "internship"?

Most Schools now insist that their pupils embark on work experience at some point before completing their GCSE's – cue school children attending the work place with vastly different levels of enthusiasm for the particular work place they find themselves in, usually placements found as a result of contacts through family and/or friends ("Yes, of course I think I do remember you..") and often bringing a refreshing take on "work wear" to the office. However, government guidance ("National Minimum Wage: work experience and internships") suggests that work experience becomes an internship where the position requires a higher level of qualification than other forms of work experience and is associated with gaining experience for a professional career. 


Must interns be paid?

No, not always. The term "intern" has no legal status in employment law and a person's rights depends upon whether or not the agreement or arrangement that is in place makes them a "worker" for National Minimum Wage ("NMW") purposes.  

The intern may in fact be a volunteer, plus there are exemptions relevant to work experience under the NMW rules. However, before an employer offers internships, it should consider if the interns are entitled to NMW and other employment rights.  An intern is unlikely to be "an employee", but if they do qualify as a "worker" they will be entitled to receive the NMW plus all of the rights that workers are entitled to.  


National Minimum Wage Worker Checklist

The government's guidance indicates that entitlement to the NMW does not depend on what someone is called, the type of work they do, how the work is described (eg. "unpaid" or "expenses only") or the profession or sector they work in. What matters is whether the agreement they have with the employer makes them a worker for NMW purposes.

The "national minimum wage worker checklist" is designed to help determine whether an individual is a worker for the purposes of NMW. This indicates that if all the following apply the individual is a worker:

  • S/he has a contract or other arrangement with the employer which entitles him/her to a reward;
  • The reward is a monetary payment or benefit in kind and not simply the reimbursement of genuine out-of-pocket expenses;
  • S/he has to turn up for work;
  • The employer has to provide work for the duration of the contract or arrangement;
  • S/he has to perform the work and services personally; and
  • S/he is not genuinely self-employed.

On the other hand, an individual is not a worker for the purposes of NMW if s/he is performing work as a volunteer or if s/he falls under an exemption, such as:

  • Work experience placements not exceeding one year undertaken by students as part of UK-based higher or further education;
  • Work experience students who are of compulsory school age; or
  • "Work shadowing", which does not involve any work being performed.

The circumstances in which an intern will not be a worker are therefore quite narrow. If the person is not a genuine volunteer and is not exempt, it is likely that s/he must be paid at least the NMW. If an employer fails to pay NMW to interns who are in fact workers, it may be required to pay up to 6 years of backdated NMW and may also face criminal penalties.


Case studies: interns entitled to NMW

The government has provided a number of scenarios in which an intern would be entitled to the NMW. A few of these are as follows:

  • An intern agrees orally that he will work for four days a week and receives some payment for working the agreed hours. As he has an oral contract, he should be paid at least the NMW.
  • An intern is told that she will be paid "expenses only" for the first three months, but is promised that she will be taken "on the books" at the end of her "internship". She should be paid at least the NMW for the whole time she works. The promise of paid work is a form of reward for work undertaken.
  • An intern receives "travel expenses" despite walking to work. He should be paid at least the NMW; paying a financial reward which is more than paying back genuine "out-of-pocket" expenses is evidence that he is a worker for the purposes of NMW.


Workers' rights

If an intern does qualify as a worker, please remember that s/he will have the following entitlements: 

  • Protection against unlawful deduction from wages
  • NMW
  • Paid annual leave
  • Rest breaks
  • Maximum working week
  • Right to be accompanied at a disciplinary or grievance hearing
  • Protection for making a protected disclosure (whistleblowing)
  • Protection under the Data Protection Act 1998
  • Right to pension contribution from employer under the auto-enrolment scheme

In some instances "workers" are defined more broadly, which means that s/he might also be entitled to:

  • Statutory sick pay
  • Protection on the transfer of undertakings


Internship Agreements – practical steps

There is no specified format for an internship agreement or offer letter for interns. However, a few sensible steps we suggest you take into account when engaging interns are:

  1. Ensure that the internship is suitable for a specified period during which the intern will benefit from a genuine learning experience. Make clear in the agreement/offer letter that the intention is for them to get valuable work experience which you hope they will find enjoyable and rewarding. 
  2. Specify a short period for the internship – particularly if it is unpaid – such as four weeks.  The intern is there to work, but this should not be an exercise in sourcing cheap/free labour.  For longer internships, consider a fixed term contract.
  3. Specify that there will be training, supervision and support for them during their internship.  Ideally there will be someone appointed to monitor their progress and to oversee the type of work they are exposed to during their internship.
  4. If the internship is unpaid make sure that specific out of pocket expenses are reimbursed.  If the internship is paid, ensure that the correct level of the NMW is paid.
  5. Provide the intern with health and safety training and ensure your insurance will cover them while in the office.
  6. Explain that in order to make the internship most useful and interesting they may have access to confidential business information, but that in return they must maintain the confidentiality of such information. 
  7. Include a statement confirming their legal status (ie a volunteer, or work experience student) and make clear that there is no intention to create an employment relationship.
  8. Consider the issue of payment carefully.  If you are not to "favour the rich", as raised by the Sutton Trust, then assess whether in fact your intern should be paid so that they can afford to take up the position.  If you pay the NMW you will encourage a wider selection of applicants and will make your position(s) accessible to those who may not have any financial backing and who definitely need an income in order to be able to take up an internship. 

Finally, treat the interns well and try to make the internship fun! The intern is providing their labour for free (or at most for a low income), they are keen to learn and, particularly in our age of social media, their feedback or comments about their experience with your organisation may go further than you think. A happy, successful internship will be spoken about far and wide, so try to ensure that any publicity you get will be good publicity…. 

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