A Nonprofit's Guide To Properly Characterizing Workers As Employees, Interns And Volunteers

For many nonprofits, the savings that comes from not paying wages, benefits and taxes provide a great incentive to classify workers as interns or volunteers. But for the nonprofits that inappropriately classify workers as interns or volunteers, those misclassifications can lead to serious – oftentimes financially crippling – penalties. Among other things, penalties typically include back wages, interest on those wages, liquidated damages (meant to punish employers for non-compliance), attorneys' fees, and unpaid taxes and unemployment insurance contributions, not to mention criminal charges for nonprofit executives and those making personnel decisions. With federal and state agencies paying close attention to these issues, now more than ever is the time for nonprofits to ensure that they have properly classified their workers as interns or volunteers.

Workers as "Interns"

Many nonprofit organizations offer unpaid internships to students seeking entry into the workforce or the nonprofit sector. Under federal wage and hour law, there is no blanket provision exempting all interns or nonprofits from the law's grasp, yet unpaid interns abound. This begs the question: Should unpaid interns really be paid? The answer in some instances is, yes.

When determining whether federal wage and hour law requires an intern to be paid, an organization must first determine whether the federal Fair Labor Standards Act (the "FLSA") applies. An intern will fall within the purview of the FLSA if he or she engages in interstate commerce, the production of goods for interstate commerce, or in any function closely related and directly essential to the production of goods for interstate commerce. The FLSA broadly defines interstate commerce to include trade, transportation, transmission, or communication between either different states or any state and any place outside such state. Accordingly, the FLSA often applies to interns who, at first glance, have no relation to traditional commercial activities. Typical examples include interns who regularly handle interstate mail and telephone calls, send or receive goods across state lines, or travel in between states during the course of their services. Additionally, the FLSA identifies several "covered enterprises" which necessarily fall under the scope of the statute, including the operation of a hospital, a preschool, an elementary or secondary school, or an institution of higher education, among others.

Given the...