05/07/11

By Caroline Essex

The question of interns and whether they should be paid for the work that they do was thrown into the spotlight in April 2011, through comments made by Nick Clegg, which highlighted the increasing use of unpaid internships and the unfair advantage that this may bring to people from wealthier, more well-connected backgrounds. As Mr Clegg stated, “informal internships can rig the market in favour of those who already have opportunities. We want a fair job market based on merit, not networks. It should be about what you know, not who you know.”

Divided Opinion

The question of whether to pay interns has divided opinion, with many smaller businesses arguing that using unpaid interns is the only way that they can afford to take on less experienced staff, thereby providing them with vital opportunities to gain experience. However, there are those who would support Mr Clegg’s comments, arguing that payment of interns would benefit not only the interns, but also businesses.

In “Why Interns Need a Fair Wage” (published IPPR, 2010) Kayte Lawton and Dominic Potter point out that the difficulties that young people from less affluent backgrounds face in accessing internships “represent an unfairness…and potentially a waste of talent” as well as “helping to ensure that certain occupations and sectors remain dominated by people from particular backgrounds.”

This article also suggests that paying interns will not only help businesses avoid future legal claims but also “improve the reputation of sectors which are currently known to rely on large numbers of unpaid interns.”

Intern Aware is a campaigning organisation, launched in January 2010, that is dedicated to promoting fair access to the internship system. Intern Aware argues that, by reducing the ability of employers to take on unpaid interns, employers will benefit from being able to recruit from a wider pool of talent, and interns will benefit because businesses will have more incentive to provide a valuable working experience, www.internaware.org .

There does seem to be a growing movement for payment of interns. In 2010 the Low Pay Commission reported to the government about the “systematic abuse of (unpaid) interns” and the Chartered Institute of Personnel and Development recommended the introduction of a ‘training wage.’

The Legal Position

The legal position as it currently stands is that there is an exemption for “interns” from the entitlement to the National Minimum Wage (“NMW”) (and more specifically for those doing a placement of less than one year as part of a higher education course). This exemption poses few problems when it comes to interns doing short term placements, and who are simply shadowing and observing in order to learn about working life.

The difficulty arises when internships become longer and the intern starts to take a more active role in the business. There then becomes an increasing chance that the “intern” has crossed the line to “worker” and is entitled to NMW. In 2009 this was the view taken by the Reading Employment Tribunal which held that Ms Nicola Vetta, who had been on an ‘expenses only’ internship with London Dreams Motion Pictures Limited, was entitled to back payment of NMW for the period of her internship. The Tribunal found that, based on the facts of that case, Ms Vetta was in fact a “worker.”

Such a decision has both employment law and tax implications for businesses.

The difficulty for businesses is that there is no clear line when a genuinely unpaid intern changes to a “worker”. However, the types of factors that will be considered are: the hours the intern is expected to work; the tasks, deadlines and standards of performance that the intern is expected to meet; the contribution that the intern makes to the organization; and whether there is a contractual obligation on the intern to perform the work in return for the organization being obliged to provide work. These questions are not definitive tests, but are indicators that an Employment Tribunal, or HMRC, might consider in deciding whether an intern was in fact a worker.

Enforcement

At the moment the law is enforced on a fairly ad hoc basis depending on whether an organisation comes to the attention of HMRC or the Employment Tribunal. Companies need to be aware of the risks of hiring interns for activities that could classify them as “workers.” If an “intern” is in fact a “worker” a business could find itself open to potential enforcement action, either by HMRC for failure to pay NMW and operating PAYE, or from an intern bringing a claim in an Employment Tribunal. The higher profile this subject becomes, the greater the chance of having Tribunal claims from disgruntled interns.