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Should Students Be Paid for Their Internship Work?

September 01, 1996

Q My brother has been working for a major stock brokerage as a summer intern. He is not getting paid for the "internship," which will last only one summer--between the two years he is studying full time to get his MBA. The job earns no college credit, nor is it required for the MBA program.

Although the main reason for the job is to get his feet wet in the industry and to enhance his resume, isn't he entitled to receive at least the minimum wage?

--D.E., Tustin


A This presents a rather complicated issue. State and federal wage and hour laws permit business organizations to operate internship programs for students without requiring that those students be paid.

Some of the criteria used to determine whether the students must be paid include:

* Do the interns displace regular employees of the business?

* Does the business obtain any immediate advantage (as opposed to long-term "goodwill") from the internship program?

* Are the interns trained to perform specific jobs, or are they given a more general educational experience?

* Are interns guaranteed a job at the end of the internship?

* What is the actual understanding of the parties involved (which may be evidenced by advertisements for the internship) concerning whether there will be pay?

Essentially, if an internship program primarily benefits the intern and has some link to the intern's education (actual academic credit is not required), it is less likely to be considered an employment relationship for which wages would have to be paid. On the other hand, an employer cannot have unpaid interns perform the work of its regular employees, nor can it use an unpaid internship program to provide on-the-job training for its own future employees.

Depending upon how your brother's situation fits within these various tests, he may wish to contact the U.S. Labor Department or the California Division of Labor Standards Enforcement for further advice.

--James J. McDonald Jr.

Attorney, Fisher & Phillips

Labor law instructor, UC Irvine

Stating Federal Law on Hiring

Q I am a board member of a nonprofit corporation. Our existing bylaws, board policies and personnel manual contain no mention of the legal requirement that employers in the United States employ only citizens, legal residents or immigrants who have official U.S. approval to work. What are employers who want to obey the law in hiring supposed to do? A fellow board member suggested that putting language in the personnel manual about checking the work eligibility of applicants is foolish because the personnel manual is given out to people only after they are hired. But my thought is that this language would tell existing employees of our policy so they will "pre-screen" friends or relatives who inquire about possible employment with the agency. This will avoid embarrassment and wasted time for all concerned, as ineligible people will know not to apply.

--R.B., Los Angeles


A The federal Immigration and Control Act requires that employers hire only people legally entitled to work in the United States and specifies the kind of information that employers should seek from new employees in order to comply with these obligations.

I agree with you that there is nothing foolish about stating in your organization's handbook that you will comply with the requirements of the law. Many employers do so for a variety of reasons, including the one that you cite.

--Michael A. Hood

Employment law attorney

Paul, Hastings, Janofsky & Walker

Forwarding 401(k) Funds to Plan

Q I work for a local hospital that allows employees to contribute up to 15% of pay to a 401(k) plan. The plan is managed by a contract company. The employer deducts my 401(k) contribution from every paycheck and holds the money for two to three months before sending it to the contract company to buy mutual funds.

Is this legal? Is there anything I can do about the situation?

--J.W., La Habra


A An employer is required to forward 401(k) contributions as soon as the money can reasonably be segregated from the employer's other assets, but not later than 90 days after the amounts are withheld from an employee paycheck. The Labor Department has made it very clear that an employer cannot automatically hold on to those funds for 90 days before forwarding them to the plan. Indeed, it is almost inconceivable that it would take two or three months to segregate an employee's contributions and send them to the plan.

As your first step, send a letter to your employer requesting that it forward the funds to the plan on a more timely basis. If that fails, you can contact the Labor Department's office in Pasadena for assistance.

Starting in February, an employer will have less time to forward an employee's contributions to the plan: New rules will require that the employee's contributions be forwarded within 15 business days after the end of the month in which the money was withheld from the employee's paycheck.

--Kirk F. Maldonado

Employee benefits attorney

Riordan & McKinzie

The Shop Talk column is designed to answer questions of general interest. It should not be construed as legal advice. If you have a question about an on-the-job situation, please mail it to Shop Talk, Los Angeles Times, P.O. Box 2008, Costa Mesa, CA 92626; dictate it to (714) 966-7873; or e-mail it to Include your initials and hometown. The Shop Talk column is designed to answer questions of general interest. It should not be construed as legal advice.

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