Intern, Externs & Stages: To Pay or Not To Pay?

February 2010Articles Culintro

With the federal and state departments of labor increasing their investigations of the hospitality industry at record pace, the issue of unpaid interns (including stages, externs and students) is an area of concern. While historically restaurants largely based their hiring and training systems on stages, trails and culinary student interns, there has always been legal risk associated with how these systems were implemented. If these individuals are performing “work” during trails or stages, the wage and hour laws typically require that they be compensated. To many restaurant owners changing these practices will mean added labor costs or redesigning hiring and training programs.

What's At Risk?

While many restaurant employers are faced with eager applicants willing to “work for free” to learn, an employee cannot waive his/her right to compensation. It takes more than an individual volunteering to work for free and a designation of this relationship as an “internship” to pass legal scrutiny under federal and state wage and hour laws. Unless the appropriate legal steps are taken prospectively, employers face significant penalties and risk beyond simply a back pay award. Unpaid internships, stages or trails could lead to legal liability with respect to employee benefits, workers’ compensation, unemployment insurance, anti-discrimination laws and federal and states taxes. State governments have been hit particularly hard by the economic crisis and have increased their investigations and enforcement actions at record pace. Employers have seen a particular rise in audits for unemployment insurance and state tax contributions. The designation of unpaid “interns” is often tested during these audits.

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