For many young people, internships, work experience and unpaid trials can provide valuable experience and a stepping stone to their chosen career. These arrangements can be initiated by employers, the person wanting the work or experience, or education / training institutions. But is unpaid work legal?

Employers need to be aware that, depending on the nature of the arrangement, the person doing the unpaid work may be considered an employee under the Fair Work Act 2009 (FW Act) and thus be entitled to the legal minimum rate of pay and entitlements for the type of work they’re doing.

Earlier this year, a Brisbane labour hire business faced court for allegedly underpaying 10 employees more than $14,000 through an unlawful unpaid work experience program. While the employees weren’t paid for their services, the labour hire business charged its clients for the hours worked by the employees. The Fair Work Ombudsman commenced litigation against the business alleging that an employment relationship existed and as employees the workers were entitled to minimum hourly wage rates and entitlements under the relevant Modern Award.

The Fair Work Ombudsman stated the key factor in the decision to commence legal action in this case was the need to deter employers from profiting by use of unpaid work schemes as a source of free labour.

While few businesses may engage in the exploitation of interns to save on labour costs, there are other employers who may be inadvertently breaking the law, even if their intention is to provide genuine work experience.

The Fair Work position on unpaid internships and work experience

The primary purpose of an internship or work experience is for the individual to learn, observe and develop skills. As such, the benefit of an unpaid arrangement should predominantly flow to the individual rather than to the productivity of the business.

Whether an unpaid work arrangement is lawful under the FW Act depends on:

Whether an employment relationship exists, or
Whether the arrangement involves a vocational placement

A vocational placement is a formal work experience arrangement that is part of an education or training course. In a vocational placement the person is not considered an employee and is not entitled to be paid any remuneration for their efforts.

Where an unpaid work arrangement is not a vocational placement, the arrangement can only be lawful if no employment relationship exists. Since there is no definition of employment under the FW Act, it is a matter of working out whether the arrangement to work involves an employment contract. Note that the contract does not have to be in writing; it can be a purely verbal agreement.

For an employment contract to exist it must be clear that:

The parties intend to create a legally binding arrangement
There is a commitment to perform work for the benefit of the business or organisation
The person performing the work is to get something in return (which may just be experience or training)
The person must not be performing the work as part of their own business

Factors which determine an employment relationship

No one factor determines the existence of an employment relationship. A worker is regarded as an employee if they satisfy a multi-factor test which includes the following:

1. What is the nature and purpose of the arrangement?

Is it to provide a learning experience or is it to get the person to assist with the ordinary operation of the business or organisation?

Where the arrangement involves productive work rather than just meaningful learning and skill development, it is likely to be an employment relationship.

2. How long is the arrangement for?

The longer the period of the arrangement, the more likely the person is an employee.

3. How significant is the arrangement to the business?

Is this type of work normally performed by paid employees? Does the business or organisation need this work to be done?

The more integral the work is to the function of the business, the more likely it is that an employment relationship exists.

4. What are the person’s obligations?

In some cases a person might do some productive work to aid their learning. An employment relationship is unlikely to be found in these circumstances if:

– the role is primarily observational and,

– the expectation or requirement to perform such activities is incidental to that learning experience and not primarily for the operational benefit of the business or organisation.

5. Who benefits from the arrangement?

The main benefit from a genuine unpaid work arrangement should flow to the person undertaking the role.

If the business or organisation is gaining a significant benefit from the person’s work (such as being able to charge the person’s work to a client), an employment relationship is more likely to exist.

* Remember to keep in mind that, even if an unpaid work arrangement is lawful under the FW Act, other laws still apply in relation to matters such as workplace health and safety or discrimination.

What about unpaid work trials?

A brief work trial can be legally unpaid if it is necessary to evaluate someone’s suitability for the job, and:

Involves no more than a demonstration of the person’s skills where they are relevant to a vacant position
Is only for as long as needed to demonstrate the skills required for the job. This depends on the nature and complexity of the work, but may range from an hour to one shift
The person is under direct supervision of the potential employer (or other appropriate individual) for the entire trial

Any period beyond what is reasonably required to demonstrate the skills required for the job must be paid at the appropriate minimum rate of pay. If an employer needs to further assess a candidate’s suitability, they should employ them as a casual employee and/or for a probationary period and pay them accordingly for all hours worked.

Further help:

Marsh & Partners offer a complete bookkeeping service. We offer fixed price packages tailored to your needs. You can be confident that your records and responsibilities are accurate as the work is carried out by qualified accountants and CPAs. As well as basic bookkeeping, BAS preparation and reporting, our bookkeepers are payroll experts and offer expertise in:

Payroll set up

Payroll calculations and payments

Payroll Tax advice and calculations

Payment summaries

Superannuation

WorkCover

Find out more about our Bookkeeping Services.

For further information and resources to help you understand your obligations as an employer, visit www.fairwork.gov.au or contact the Fair Work Infoline on 13 13 94.

If you have any questions about your employer obligations, please contact our Bookkeeping and Payroll team. You can reach us on (07) 3023 4800 or at mail@marshpartners.com.au.

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