Economic Policy Review ISSN 1313 - 0544

Internship Regulations?

Author: Adrian Nikolov* / 25.01.2013
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One of the major difficulties which young people face when looking for their first jobs are previous experience requirements, which employers usually require from applicants. The currently existing internship programs, offered by various businesses, nonprofits and state administration offer an elegant solution to that problem, which benefits both sides – young people receive valuable practical skills and recommendations, employers find competent and enthusiastic employees at a very low (or sometimes no) price. So far, internship programs were not regulated by special legislation, so it was up to employers and interns to arrange this type of labor. This week, however, CEDB announced their plan to impose regulation on these activates by introducing amendments in the Labor code, to come in force in the beginning of 2014.

The most important issue included in the proposed internship regulations is their binding to the minimum wage; interns are to be paid at least 310 leva monthly. Currently a large portion of internships are not paid; most probably introducing such an obligation will force most of them to cease. The reason is that internships differ greatly from the usual forms of labor; “payment” for them comes not only in money, but mostly in the form of experience, training and receiving of know-how, which interns cannot accomplish during their university education. Even if internships are not paid directly, they are a type of investment in human capital, which can only benefit the interns. Employers use their own resources, as well as the time of their employees, to train the interns, who can’twork with the skill and capacity of regular employees; therefore the payment requirement will discourage employers to offer internships. Interns usually work on shorter business hours than “usual” employees since they are usually also engaged in certain types of education – and for that reason binding internships to the minimum wage is not appropriate. Until now, as much as they are a type of labor, internships were voluntary; the requirement to pay the interns will cancel that option. This reasons aside, interns are usually students, who have a set of special privileges – scholarships, subsidized (i.e. cheaper) dormitories, transportation preferences,etc.

Internship programs which lack the appropriate contracts are planned to be liable to a fine up to 15 thousand leva – in other words, voluntary internships will not only be banned; they will also constitute a criminal offence. The duration of internships will also become subject of regulation – they will be limited from one to nine months. Even though most internships fall within these boundaries, there are certain fields of work – technical and engineering mostly – where interns need a longer training period before they can acquire the skills necessary for full proper employment. The Labor code amendments, however, require the employer to either hire the intern on a regular contract or to end their business relations. The special type of internship contracts will be available only to people below 29 years of age, which will limit access to internships, especially in cases when they are used as ways of prequalification. Another restriction will require interns to have no previous experience, which disallows people to have multiple internships in order to obtain multidisciplinary experience or to enrich their training while having some other type of employment. On top of that, internships will be closely related to tertiary education – only those who are currently enrolled in an educational institution or have graduated in the last two years will be able to sign an internship contract, which will further limit the access to internship programs.

Another proposed measure is to offer tax reductions to employers who offer internships. However it is not clear what sort of reductions will be proposed and whether they will be sufficient in order to attract employers who previously offered no internships. Even though tax reduction is a pretty straightforward stimulus, it is not clear whether they will cover the compulsory payment of internships (i.e. whether the employer will still suffer a net loss). The procedure will certainly cause administrative trouble for both employers and taxation authorities. The introduction of tax reductions might also create a certain type of malpractice – signing “fake” contracts with interns who do not do any real work just in order to obtain the tax reductions.

In its current form, the proposed regulation of internships will have an effect contrary to the one expected – namely, it will limit the access and discourage employers to hire interns. Since they are only proposals for amendments in the Labor code to be discussed by the labor organizations, employers and state authorities we can only hope that they will see reason and the terms of internships will remain a matter of mutual agreement between employers and interns.

 

* Intern in IME