How do you tell whether somebody is an intern or employee? Where does an intern stop and employee start?
Intern or Employee
People might ask you to intern in your practice. Or you might do the payroll for your clients and suddenly an intern gets mentioned on the side. So then you need to know how to navigate this minefield.
In this episode James True of LegalVision in Sydney will discuss the details with you.
Here is what we learned but please listen in as James explains all this much better than we ever could.
To listen while you drive, walk or work, just access the episode through a free podcast app on your mobile phone.
Intern or Employee
Internships are legal minefields for employers. When you engage an intern, you easily end up with a Fair Work claim asking for unpaid wages, annual and sick leave as well as super.
The legal status of interns is unclear. The term ‘internship’ is not a legal term as such. It has no meaning under common law or the regulatory landscape created by the Fair Work Act 2009 (Cth).
Your intern is therefore either an employee, or has no legal relationship at all with your business. It is an all or nothing proposition. There is no middle ground. This makes it so difficult.
In the end it comes down to money. Interns are usually unpaid or only receive a very modest ‘stipend’ and that is the issue.
Where an intern is really an employee, then the entire weight of Australia’s employment law lands on your shoulders as their employer. You then have to pay minimum wages, annual and sick leave and all the other basic entitlements set by law. This includes the Fair Work Act and the National Employment Standards contained therein as well as applicable award or enterprise agreements.
And if you don’t do that, you face signficant liabilities under all those rules and regulations.
Let’s start with the only safe harbour there is -vocational placements.
The Fair Work Act provides that an employer’s usual obligations don’t apply if the intern’s role satisfies the definition of a ‘vocational placement’.
Per s13 of the Fair Work Act, a ‘vocational placement’, is one that is:
(a) undertaken with an employer for which a person is not entitled to be paid any remuneration; and
(b) undertaken as a requirement of an education or training course; and
(c) authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory’ (s 12).
This exception covers internships where students gain required credits for their course work.
So you are safe from a Fair Work Ombudsman investigation, if you take an unpaid law graduate completing their required practical training. The same applies to accounting students or TAFE trades, when their course requires these vocational placements.
But beyond these vocational placements, the road is treacherous. And the courts are full of employers who meant well but got it wrong.
There have been a number of court cases in recent years where the Fair Work Ombudsman prosecuted businesses for utilising unpaid or underpaid interns. Here are three examples:
In 2015, Fair Work Ombudsman v Crocmedia Pty Ltd  FCCA 140, Judge Riethmuller penalised a Melbourne-based sports media company $24,000 for an ‘exploitative’ arrangement where two individuals undertook work in return for modest ‘expenses’ paid.
In the 2016 case of Fair Work Ombudsman v Aldred  FCCA 220, the respondent was ordered to pay $17,500.
And also in 2016 in Fair Work Ombudsman v AIMG BQ Pty Ltd  FCCA 102, the Federal Circuit Court imposed a penalty of almost $300,000 on a media company that had failed to pay an intern for 180 hours of work and committed various other breaches of the Fair Work Act.
In each of these three cases, the business admitted liability and the court just had to decide the size of the penalty.
Where is the line
So what turns an intern into an employee? Where is the fine line?
The fine line is hard to see. The High Court demands an objective test to decide. Byt there is no black and white. And that makes it so risky for employers.
Shorter is less risky than longer. Just observing is less risky than working. But all up, there are no clear cut rules. Instead, you have to go back to common law principles of contract, so basically look at court cases.
Play It Safe
So in the end – play it safe – don’t do internships unless they are a vocational placement. Even if the applicant wants to work without pay – even if they plead with you to be allowed to work for free, they can turn around at any moment and demand full employee entitlements. And if you then don’t pay up, you face even higher penalties. The risk is just too high.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 15 March 2021