By Catharine Geddes, Partner, Lester Aldridge

There is no single legal definition of an internship and the reality is that it is used to cover a number of different arrangements. It is certainly a phenomenon which has been increasing in popularity, but also one which often receives mixed press. Internships can be beneficial for both the business and intern. The business will have additional help (often to assist with short term projects or needs) and the opportunity to assess the intern’s performance. The intern gains valuable insight and experience. However, there are potential pitfalls in offering internships, particularly where there is a misapprehension as to the position with unpaid internships (see below) and an assumption that this approach can be taken. In addition to the potential for an Employment Tribunal claim by the intern or a challenge by HMRC, there may also be reputational concerns for organisations with the growing focus (by media and industry groups) on the use of internships and the potential for ‘exploiting’ those keen to gain experience in a competitive market.

What rights does an intern have?

There is a distinction in employment law between employees, workers, the genuinely self-employed and a narrow category of true volunteers. In assessing an individual’s employment status, an Employment Tribunal can look behind the label given by the parties to the reality of the arrangement and so the label given will not be conclusive of someone’s status. Status will depend on the application of a number of different tests which are very fact specific – these will include mutuality of obligations, personal service and control.

Employment status is an important issue for a number of reasons. It will affect the rights and obligations of both the business and the intern – for example in relation to pay, taxation, dismissal/termination, confidentiality, discrimination, family friendly rights, ownership of intellectual property and health and safety.

Free labour?

An intern’s rights will depend on their employment status. Interns may be classed as ‘workers’ if they have a contractual obligation (express or implied) to perform work or services personally. In this case, they will be entitled to paid holiday entitlement, a limit on their maximum working hours (unless they sign an opt-out agreement) and statutory rest breaks all under the Working Time Regulations 1998, as well as protection from discrimination and certain other rights. Workers are also entitled to be paid the National Minimum Wage applicable to their age.

If an intern is simply work shadowing and is not given specific duties, they are unlikely to be classed as a worker under employment legislation. If the individual is contributing to the organisation and has a defined role and duties, as well as being expected to attend for set hours of work they are more likely to be a worker and, potentially, an employee.

Where an intern qualifies as a worker (or an employee) they would need to be paid the National Minimum Wage. This is less likely to apply where the internship is for genuine learning experience only so that they are simply shadowing and able to come and go as they please and without consequences for poor attendance. The employer can cover expenses incurred by the intern and the extent of paid expenses will be at the discretion of the employer and should be detailed in any written arrangements or agreement. A requirement for receipts or other evidence to support the expenditure will also help to demonstrate that the payments aren’t wages or earnings. There are also some limited exemptions in the National Minimum Wage legislation for students undertaking internships.

As well as employment law rights and duties, employment status is an important issue for HMRC. An intern may have to pay income tax and national insurance contributions depending on their earnings (and employment status). If the person falls within the remit of an unpaid intern who is not a worker or employee, they will not have to pay tax.

What should we consider when taking on an intern?

Employers do need to be careful before offering unpaid internships even though it may seem that there’s an endless list of those prepared to accept ‘work’ on this basis! Businesses should consider the opportunity or position they are looking to offer to an intern. If the reality is that the individual will have certain duties and obligations (perhaps in terms of hours) then the business should consider whether it is able to comply with its obligation to pay the national minimum wage. Alternatively if the business is able to offer an opportunity for an intern to shadow someone to learn and gain experience then care should be taken to ensure that the arrangement does not subsequently become one with more ‘obligation’.

Employers should also consider wider issues such as:

• Ensuring that the intern is legally entitled to work in the UK
• The contractual or other arrangements and documentation in place between the business and the intern
• Payment obligations and the national minimum wage
• Providing a supervisor or mentor
• Planning what the intern will do and how their internship will work – this will help to maximise the experience for both sides
• Consider holding an exit interview with interns at the end of their internship to see what lessons can be learned from their experience

What about contracts?

There is no legal obligation to have a written agreement or contract in place with interns. However, this can be a useful way of setting out details of the relationship and also the expectations on both sides.

The Department for Business, Innovation and Skills (BIS) suggests that for unpaid internships businesses should utilise a short document covering:

• Placement dates
• Suggested hours of attendance
• Location
• Supervisor's name
• Specific learning objectives.
• Work related expenses
• Health and safety
• Insurance
• Confidentiality

In some cases it may even be appropriate to use a short form of employment contract.

Where an intern will have access to commercially sensitive information the organisation should ensure that an appropriate confidentiality or non-disclosure agreement is put in place from the outset to avoid difficulties and unintended leaks of information.