Internships

We are approached all the time by students seeking internships. Do we have to pay them? What are our obligations to them?

There are different capacities in which people can perform work in a business. For example, it is possible for any one business to lawfully have employees, independent contractors, volunteers and unpaid interns, or students undertaking work experience, operating within the workplace at the same time.

However, it is of critical importance for a business to correctly classify the status of each individual who services the business. An intern does not have to be paid as long as they area bona fide intern and not an ‘employee’ incorrectly classified as an ‘intern’.

Major legal and financial consequences for incorrect classification of employees as unpaid interns

There are likely to be onerous legal repercussions for a business that incorrectly classify an intern as an ‘employee’.

For example, employers will owe employees specific obligations in regards to numerous areas of law, including industrial relations legislation, long service leave, workers' compensation, superannuation, tax deductions, ownership of intellectual property and other record-keeping matters.

If an employer fails to appropriately classify a worker as an employee and instead treats them as an unpaid intern, then the employer could be penalised under all of the areas of law described above. The employer could also incur the prosecution of multiple statutory agencies such as the Australian Taxation Office and the Fair Work Ombudsman.

Further, the Fair Work Ombudsman and Australian courts have stated that they are prepared to take severe action against employers who incorrectly classify and treat employees as unpaid interns. A recent case saw fines of over $270,000 issued against a company and fines of over $8,000 being personally imposed on a company director. This was due to the incorrect classification of the employee as an unpaid intern and the consequent failure to provide the employee with their entitlements.

Benefits provided in excess of obligations.

Similarly, workers that are not employees will not be owed all of the entitlements of an employee. Therefore, it is in a business’ interests to understand what its obligations are at all times in order to avoid mistakenly providing benefits which are not owed.

How to distinguish between an employee and an unpaid intern or a student undertaking work experience

Step 1

The Fair Work Act 2009 starts with the position that all workers performing work must be paid the national minimum wage or the rate under any relevant industrial instrument such as a modern award or an enterprise agreement.

Step 2

However, section 12 of the Fair Work Act 2009 states that "vocational placements" may be unpaid. This is a key exception to the need to pay people for performing work.

The phrase "vocational placement" is defined in the Fair Work Act 2009 as:

a placement that is:

(a) undertaken with an employer for which a person is not entitled to be paid any remuneration; and
(b) undertaken as a requirement of an education or training course; and
(c) authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory

Step 3

If a vocational placement does not exist, an employer would be required to pay an employee unless the business owner could establish that no employment contract existed between the business and the unpaid intern.

List of questions

Included below is a summary list of questions that the Fair Work Ombudsman has posted on its website to help determine whether an employment contract is in existence during an unpaid internship that cannot be classified as a vocational placement:

• Is the purpose of the program to give the person experience or to obtain productive work? The more productive work that the person performs (as opposed to simply observing work that others are doing) the more likely it is that they would be an employee.
• How long is the program going to last? The longer the duration of the relevant program, the more likely it is that the person would be an employee.
• Would the work that the person performs normally be done by a paid employee? Does this work need to be done? If the answer to both of these questions is ‘yes’, then it is more likely that the person is an employee.
• Is the person expected to come to work or to complete productive work? Although an intern may produce productive work, answering ‘yes’ to the above questions is more likely to suggest that the person is an employee.
• Who is getting the benefit from the program? If the person is getting the most benefit then it is more likely that they can be classified as an intern. If the business is benefiting from the person’s work then it is more likely that they are an employee.

Tailored advice

Members can call the Workplace Advice Line on 1300 55 66 77 for advice about the correct classification for any worker within their business.