Internships are an attractive option for many businesses, particularly in the startup community. As startups try to grow on shoe-string budgets, interns are often seen as an easy fix when a company can’t afford to hire more employees. Unpaid internships are also often seen as a rite of passage for many new workers entering the startup scene. Working for free, grabbing coffees and trying to make a good impression to a possible future employer is par for the course.

Even though this type of unpaid work is common and often condoned, many startup employers are not across the applicable legislation and the consequences of non-compliance. With increasing competition for jobs and experience, many workers may be offering your startup free work which could be hard to turn down.

As a startup co-founder and employer, it is important to know and understand the employment laws that govern internships in Australia. Failing to comply with the Fair Work Act 2009 (Cth) (Act) exposes you to risk. For example, your unpaid workers might be able to show that they were, in fact, employees, and owed due entitlements under the National Employee Standards (NES). Not complying could lead to an investigation by the Fair Work Ombudsman and fines for breaching the Act.

When do the NES Not Apply?

The National Employee Standards apply to employees across Australia and set out the basic entitlements employers owe to employees. Section 13 of the Act sets out an exception whereby vocational placements are not subject to the same requirements and entitlements as a paid employee as the worker is not considered an employee for this purpose.

What is a Vocational Placement?

A vocational placement under the Act is a placement that:

  1. A person undertakes with an employer and isn’t entitled to remuneration; and
  2. A person undertakes as a requirement of an education or training course; and
  3. Authorised under a law or an administrative arrangement of the Commonwealth, a State or a Territory.

If your unpaid intern is not in a vocational placement and an employee relationship exists, you will be in breach of the NESs by not paying them for the work completed.  

Is my Intern an Employee?

The safest option is only to hire interns who are completing vocational placements as a part of a university or TAFE course. Many courses have subjects which are substantially made up of undertaking an internship and writing about the experience. Many professions also require a certain number of hours to be completed as a part of the certification process. Whatever your industry, there should be plenty of students available to undertake internships at your startup under a compliant vocational placement.

If your intern isn’t completing a vocational placement, it doesn’t necessarily mean they are an employee. There are many factors that will result in reclassifying an unpaid intern. If you are looking at having an intern do any substantive work where your startup will gain benefit, and they are not completing a vocational placement, it may be extremely difficult to ensure that they are not an employee. For more details, you can read our article on whether employers can offer unpaid work experience.

What Should I Include in my Internship Agreement?

Once you bring on your intern, it is also important to have in place an intern agreement which will set out the relationship between your startup and your intern.

Your internship agreement is critical to defining the relationship between your startup and your intern. As your intern is not an employee, it can be mutually beneficial for both parties if your intern understands what is expected of them in the role.

This agreement will also address the role and obligations placed upon the intern during the internship and the working hours expected. The term of the placement should correspond with the placement hours set out in the details of the university or TAFE course.

The agreement should also explicitly state that the role is unpaid. However, you may consider as a part of the internship agreement covering the intern’s travel and food expenses, although this is not necessarily a requirement.

The intern agreement will set out that your insurance will not cover the intern at your place of work. The relevant university course sometimes covers this insurance, but the intern should confirm this before starting their placement.

Two particularly important areas your agreement should address are confidentiality and intellectual property. Like any other person working in your business, interns have access and are exposed to confidential information including client details, know-how and systems and processes. Depending on the nature of the role, where the intern is drafting content, writing code or generating work for your business, you should be sure that they assign the intellectual property rights in the work created by them to the startup under the internship agreement.

What if my Intern is Visiting From Overseas?

If an international student is completing an internship as a part of their university or educational placement overseas, then they can be considered a non-employee if you comply with the requirements of that particular vocational placement. You should make sure you have on file the documentation which sets out the details of the vocational placement in case questions later arise.

Key Takeaways

If you run a startup, it is important to understand your obligations as an employer. With the increasing competition for work particularly for students and graduates, there may be even more temptation to bring on unpaid workers desperate for experience. If you take on unpaid workers under arrangements that do not comply with the Fair Work Act, you expose yourself to avoidable risk and fines. If you need an internship agreement quickly drawn up or require further advice on employment law, get in touch with our employment lawyers on 1300 544 755.

Edith Moss

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