To pay or not to pay: is that the question?

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In recent months there have been a number of lawsuits brought against companies by unpaid interns saying that the interns should have been paid for the work they performed. As Jane M. Von Bergen wrote in her February 24, 2013 article for the Philadelphia Inquirer: “In December, TV host Charlie Rose and his production company agreed to pay up to $250,000 to settle a 2007 wage-and-hour lawsuit brought by an unpaid intern.”

But there are voices to be heard on both sides of the paid vs. unpaid interns issue. Whether paid or not, an internship provides a unique opportunity for a student (or recent grad) to experience the real world of work, with all the “grown up” responsibilities that a job brings. These include proper attire and appearance (cover up those tattoos and piercings), timeliness (9:00 am means 9:00 am), listening and following instructions (without the benefit of a friend’s notes), modeling appropriate behaviors and comportment (cell phone turned off, no texting at meetings unless it is a required a tool for communicating with clients and colleagues on business matters). All that is very cool (and useful) in an intern’s “test phase” of the real world. As Derek Thompson wrote in his January 8, 2013 article for The Atlantic: “Hundreds of thousands of young (and not so young) Americans are willing to work for nothing in exchange for the experience to take part in the daily thrum of a company.”

Many more would happily accept an internship if available and offered – internships are hard to come by and not everybody who wants one is able to get one.

It can be great for the company too, since more hands make lighter work. For some companies the internships are an important path to future employment. Although no commitment is made up front, internships are a great way to test whether an individual is suited to the work and to the culture of the company. In fact, many companies offer internships only to those who would be employable after graduation and the internship serves as an audition.

Vito Pandolfo says that in his experience working with clients who have robust internship programs: “The most successful arrangement is where intern is treated with the full measure of respect given permanent employees. Careful vetting of candidates along with written job descriptions that outline responsibilities help to reinforce mutual understandings of duties, goals, and expectations. When all this happens, companies inadvertently create a pool of prior interns from which to select future employees.”

Colleges and universities who may be granting credit hours for these intern assignments are strict (at least from paperwork perspective) about what the intern will be doing and learning. As Grahall’s Judy Newman said, “If the paperwork requirements are exceptionally daunting, a company may choose not to offer credit bearing internships.”

So should interns be paid, and if so when? That question is intended to be answered by the Department of Labor of Labor’s Wage and Hour Division. They lay out 6 criteria for determining if the internship is a trainee position (and therefore not requiring wages to be paid). One key element of these six is that: “The [unpaid] student does not displace a regular employee, but works under the close observation of a regular employee or supervisor.” The purpose of the regulations is to ensure that an employer is not improperly catagorizing a worker as an “intern” in order to avoid paying a salary.

That should be quite a relief to the millions of out of work Americans searching for a paying job, even one at minimum wage. They, theoretically, won’t be displaced by a student willing to work (correction: to intern) for no pay.

Minimum wage pay and jobs have enjoyed quite a long cycle of rhetoric on the cable news channels since the President’s call for an increase in minimum wage in his State of the Union message in January. Proponents speak to the need for a living wage. Opponents point to the fact that increasing minimum wages will increase employer costs, and these increased costs could result in increased prices to consumer, reductions in workforce, or product changes. (Perhaps even now Subway’s® management is contemplating a further reduction in the size of its Footlong® from 11 to 10 inches.)

As Annie Lowrey said in her article for the New York Times on February 13, 2013, “Many companies that hire low-wage workers — both small businesses and large businesses — have in the past vociferously opposed raising the minimum wage, as it increases their cost of business.”

But these discussions of the fairness of paid vs. unpaid interns and whether an increase in minimum wage heralds a new utopia or a calamity entirely miss the point: minimum wage (or any salary for that matter) is often a very small part of the employee’s total rewards (or the total cost that the employer bears for each employee). Take the example of Affordable Care Act. Robert Cirkiel reminds us that: “The landscape is definitely going to change when these provisions go into effect in 2014.” Employers with at least 50 full time equivalent employees will be subject to regulations requiring that they provide health insurance or be subject to penalties. A paid intern at a “large employer will be covered under the Affordable Care Act as well. The complex underlying calculations of employee count and circumstances under which penalties will be applied  are explained by Robert Cirkiel in his blog entitled “Shared Responsibility”. Click here to access that blog.

Whether the company is a local landscaping firm with 50 people or a low cost retailer who employs tens of thousands, these are often companies that hire minimum wage employees who work on part time schedules specifically so the employer can avoid the cost burden of providing certain benefits such as insurance and retirement programs. In the past, part time workers may have been second wage earners or short term job seekers that were not in need of benefits, but this is no longer the norm.

No wonder the outcry from many companies, especially those in the fast food business, who might employ a minimum wage worker who is lucky to bring home $15,000 per year. Family health care coverage that complies with the Act will likely cost the company more than that salary! On this subject it is important to note that compensation means a lot more than just cash compensation and when looking at the fairness or competitiveness of compensation one must look at the entire package of pay, benefits, time off, and statutory taxes such as Social Security, Medicare, Worker’s Comp and statutory disability where required.

Regardless of cost increases or percentages of pay, public sympathy is likely much greater for the smaller, local employer than for WalMart or Subway whose CEO and management team might be taking home sever figure salaries while the grunt worker making minimum wage brings home $15k.

Of course, as Robert Cirkiel explains: “The Affordable Care Act was touted as reducing health care cost increases overtime, but that horizon is fairly far out at best..” and in the short term, the impact of this act will be most significantly felt by the smaller of the “large” employers as they have been less likely to offer health coverage to their employees than have large employers.

With unemployment hovering around 8-9% issues of job availability are of high concern. Perhaps one of the most “in your face” performance indicators of our economy is who holds these minimum wage jobs? Is it a high school or college kid looking for some pocket money or the displaced 55 year old looking to feed his family or provide them with health insurance?

With a scarcity of jobs, even those at minimum wage and competition for those job fierce, unpaid internships may be the only way that students get some real life experience that employers are demanding to see on a resume.

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