The potential for an internship to turn into a public relations debacle and an ensuing legal challenge has been illustrated by some recent examples. There was the furore over a Labour MP who allegedly paid young “interns” (later to be renamed “volunteers”) £25 for a six-day working week in the build up to polling day and a Canary Wharf-based law firm that supposedly advertised a summer placement that students would have to pay for.
Internships can be a great way to tap into talent and an excellent route for individuals to get a foot in the door in highly competitive industries. For these reasons, internship programmes are incorporated into workforce planning and recruitment processes for many organisations within the financial services sector. However, with heightened interest in internships from the media and the unions and HMRC crackdowns on unpaid internships (with now increased potential penalties) it is even more important to get the management of these programmes right.
The nature of internships varies extensively between organisations. Before taking on an intern, it is essential to identify the relationship between intern and engaging entity. Interns could be volunteers, workers or employees. Where an individual is purely work shadowing and is merely there to watch and learn, the arrangement is more likely to qualify as voluntary work experience. If interns are expected to do the job, rather than simply shadow, they are more likely to be classed as workers or even employees.
Although an intern’s status will depend on the facts, in most cases, an intern in the financial services sector will be at least a worker and may even be an employee. Those who incorrectly categorise a low paid or unpaid internship as voluntary work experience run the risk of breaching their legal obligations.
If an intern is a worker, they will be entitled to the national minimum wage, paid annual leave, rest breaks, the 48-hour maximum working week, protection from discrimination, harassment and victimisation and to whistleblower protection. If deemed to be an employee, an intern will also have the right to claim unfair dismissal and a statutory redundancy payment on reaching two years’ service.
By contrast, genuine volunteers only have limited rights such as the right not to be discriminated against or placed in an unsafe working environment.
Minimum wage expectations
Unless an intern is merely work shadowing, they are likely to be classified as a worker and should be paid at least the national minimum wage. Although this will not be an issue for many financial institutions who pay significant sums to their interns, those who run unpaid or low paid internships may risk HM Revenue & Customs enforcement action for failure to pay the national minimum wage (including penalties and naming and shaming).
The maximum penalty for underpayments was increased from £5,000 to £20,000 in March 2014 and, as from May 26 of this year, this maximum penalty became applicable to each underpaid worker rather than to each notice of underpayment. Organisations found to be flouting their legal responsibilities now potentially face a sizable bill for their failings as well as consequential damage to reputation.
Advertising and recruiting
Advertising and recruiting processes for interns should be dealt with at the same level of care as for employees to ensure that organisations are not left exposed to claims of discrimination. During the recruitment process applicants should be asked whether they have a disability and if any adjustments can be made to support them.
Firms should also have in mind their code of conduct rules, in particular those relating to equality and diversity, and the Bribery Act 2010. The wealthy client requesting an internship for a family member will be familiar to many.
Other potential pitfalls
Employers have a statutory duty to take care of the health, safety and welfare of their employees and to conduct their businesses in a way that ensures non-employees are not exposed to risks to their health and safety. Failure to comply with these obligations can lead to criminal liability and hefty fines. Organisations would be well advised to carry out risk assessments and to monitor their interns’ well-being regularly.
Once the new Senior Managers’ Regime is introduced, the involvement of interns in regulated activity could pose an even greater risk for financial services firms and their managers. The onus will be on the senior manager to manage all of the resource within their area effectively including those not directly employed. Steps should be taken to identify and manage this risk – a training programme on handling hidden risks should be implemented, adequate supervision provided and standards rigorously enforced.
Putting pen to paper
Drafting appropriate documentation is essential to managing the risks of internships. A statement of employment particulars setting out the statutory minimum information should be provided to short-term employees. Interns who are likely to be workers should be given a letter or contract confirming basic terms including the dates of placement, the location, pay (which should be at least the minimum wage) and any expenses, the name of their supervisor, confidentiality, limits on working hours, health and safety, statutory holiday and compliance with policies and procedures. Those on genuine work experience should still be given written confirmation of the main terms of the arrangement to manage expectations.
Apprenticeships: a viable alternative?
Given the risks of internships, some employers may want to consider alternatives including the use of apprenticeships or graduate training contracts. These have the benefit of fully integrating the individual into the organisation and allow for their working conditions to be properly monitored.
In the lead up to the General Election, Labour promised to “tackle” unpaid internships, the Liberal Democrats to review the practice and the Green Party committed to end the exploitation of interns. In contrast, the government’s manifesto was silent on the subject. Despite this, the topic of internships remains an emotive one. The use and abuse of interns will continue to attract unfavourable headlines and arouse strong public opinion.
Disregarding legal duties to interns may have unattractive consequences for credibility as well as the possibility of legal proceedings. Organisations should therefore take care when planning their next intern intake if they want to avoid being the subject of the next round of media criticism.
Authored by Laura Brown, solicitor in the employment team at DWF LLP.
Published by Thomas Reuters on Compliance Complete