Free labor could pose problems for companies

July 13, 2009

USA-ECONOMY/As any small business owner knows, getting a new company off the ground requires a lot of work. And for those entrepreneurs not enamored with the idea of running their company as a one-person show, hiring employees is among the first steps along the way to actually making it happen.

Unfortunately, many of the same startups burdened with so much work also suffer from a limited supply of funds in their early days, meaning they can find it tough to afford the number of employees they need.

But with the ranks of unemployed in the United States hovering at its highest rate in more than two decades, some small firms have found a rather unusual solution to this dilemma  – people willing to work for free. Employment agencies such as and PeopleConnect have done their part in connecting unemployed individuals willing to work without payment to small firms in need of a helping hand.

But hiring individuals to work for free, even for a few hours a week, could land your firm in legal hot water.

According to FindLaw, an online provider of legal information, the Fair Labor Standards Act states that minimum wage must be paid to employees at all businesses that have $500,000 or more in annual sales. While that seems to rule out some smaller companies, here are a few further guidelines from FindLaw on the finer points of the law to consider:

  • Even if your firm’s sales fall short of the above threshold, your employees may still be covered if they work in commerce between states, which has been interpreted by courts to include sending or receiving mail from out of state, making interstate phone calls, or handling goods that have moved interstate
  • Even those businesses that are small and local enough so as to fall outside of the sales parameters may be subject to their home state’s minimum wage law
  • Some cities and counties also impose minimum wage requirements on businesses within their borders

Other common violations of the law related to employee wages cited by FindLaw include: paying the lower “training wage” or “youth minimum wage” to workers who should be paid more, not paying overtime, making employees work “off-the-clock” and not paying them for it, deducting too much for tips and deducting for wages paid in goods (such as meals or food).

So, while it might be tempting to jump at the opportunity to have people work for free or clock extra hours without compensation, it would be wise to do a bit of legal homework first.

Visit FindLaw’s wages and benefits page for more information.

(Photo: A job seeker looks at job postings and other information at Work Place, which provides comprehensive employment and career services in Boston, Massachusetts June 5, 2009. REUTERS/Brian Snyder)


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I love the idea as it gives unemployed people the chance to practise their skills or to simply gain job experience. It looks very promissing but they first need to work out the legal stuff.

Posted by Nikkei 225 | Report as abusive

Encouraging the unemployed to work for free is not great for the economy.

Every business makes money from “average Joe” whether directly or indirectly. Therefore cutting off the wages coming in to the very people who fuel your business is a poor way to operate.

That being said, government regulation in many western countries doesn’t support small businesses. Therefore it is no wonder that small businesses are continually reaching out to International outsourcing companies instead of hiring staff in their own town.

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