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Do You Have to Pay For an Internship? Legal Requirements for Employers

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It’s a win-win. In an internship, the intern gains hands-on work experience. Businesses gain young professionals who are eager to work and bring fresh ideas to the table. But there’s one looming question: the expectation of compensation. Should internship experience be paid or unpaid? 

Business owners and hiring managers looking to hire interns, we’ve got your back. In this article, we answer whether employers have to pay for an internship, explain the legality of unpaid internships and give the pro and cons of paid internships.

Do You Pay For An Internship?

Ultimately, it’s up to the employer as long as the intern is the one benefitting the most from the work arrangement. Although most internships (about 60%) tend to be paid, the Department of Labor (DOL) is flexible when it comes to internship payment options and allows the employer to make the final decision. But only if the work arrangement adheres to the DOL’s primary beneficiary test – that the intern is the “primary beneficiary.” 

The primary beneficiary in a work arrangement determines whether the internship should be unpaid. If the employer is the primary beneficiary (they benefit the most from the work arrangement) then the intern is considered an employee and entitled to all FLSA protections – including federal minimum wage and overtime pay. 

Although it’s not technically required to pay for internships if the intern is the primary beneficiary, most career services professionals recommended paying interns. Interns are contributing meaningful work to your organization (as long as they’re not stuck getting coffee!) They should be compensated for their time and effort. Just be sure that you’re adhering to minimum wage and overtime laws.

Unpaid Internships For Nonprofits

It’s important to note that unpaid internships for non-profit organizations are generally persmissible. The Fair Labor Standards Act (FLSA) does exempt certain people who perform services for a state or local government agency or who volunteer for humanitarian purposes at nonprofit food banks. The DOL’s Wage and Hour Division also recognizes an exception for individuals who volunteer their time.

How Much Should I Pay an Intern?

A recent National Association of Colleges and Employers (NACE) study found that companies can expect to pay an average of $20.76 per hour for bachelor’s degree-level interns. While younger interns with less experience, such as high school students, may receive minimum wage.

Are Unpaid Internships Legal?

Unpaid internships are legal as long as the intern is the “primary beneficiary” of the work arrangement. According to the DOL, a “primary beneficiary test” determines whether an intern is classified as an employee. The test examines who primarily benefits from the relationship: the employer or the intern. In all cases, employers should document the duties of the internship to show it adheres to the DOLs primary beneficiary test.

The DOL Test To Determine An Internship

To determine whether a student or intern should be classified as an employee under the FLSA, consider using the DOL’s primary beneficiary test. The test considers seven factors and how they apply to the intern-employer relationship. For example, any direct or implied promise of pay suggests that the intern is an employee, and vice versa.

The key consideration is determining who benefits more from the internship; the student or the employer. If the employer is profiting from the work, the company may have to treat the intern like an employee and pay them at least minimum wage and overtime according to federal guidelines. States, cities, and local jurisdictions may have additional, conditions that employers must satisfy.

The “Black Swan” Lawsuit

The importance of the determination “primary beneficiary” in an internship was solidified when a lawsuit on the production of “Black Swan” was settled. According to CNBC, Eric Glatt and Alex Footman worked on the award-winning film “Black Swan” as interns, filed a lawsuit against Fox Searchlight alleging the production company violated the Fair Labor Standards Act by not paying them for their work. 

After an appeal in 2015, the judge found that rather than consider if the organization received a benefit from the work of an intern, “the proper question is whether the intern or the employer is the primary beneficiary of the relationship.” 

In 2016, Glatt and Footman settled their case with 21st Century Fox. Those who interned on the movie were awarded amounts ranging from $495 to $7,500.

State Laws and Unpaid Internships

As long as the intern passes the DOL primary beneficiary test, it depends on your state. The Fair Labor Standards Act (FLSA) does not require compensation for interns and students, but state laws may beg to differ. Some states, such as California, require that workers must be paid at least minimum wage except in very limited circumstances. California has a stipulation that student workers must be paid 85% of the California minimum wage (as little as $11.90 per hour.)  When meeting terms of federal standards, local rules may be more strict and can take precedence.

The Pros Of Offering Paid Internships

Hard work should always be rewarded. If your interns are contributing good work for your company (more than just the intern doing a coffee run!)  — they deserve to be compensated. Offering paid internships will benefit the intern but also your business, you will notice an increase in: 

  • Motivation. Knowing the work you’re putting in comes with monetary results can motivate interns to work hard and feel included and encouraged.
  • Appreciation. It makes people feel good when they are rewarded and a paycheck is a great way to show appreciation for the work your interns are putting in. 
  • Reputation. Giving your interns a great experience will make your company stand out. This reputation boost will give you positive brand awareness and candidates will be more likely to apply for future opportunities. (Hello new customers and awesome employees!)

Perks of paying your interns go beyond internal reward and recognition. While those are great benefits – paid vs. unpaid internships can spark legal confusion or backlash. When in doubt, the safe option is to make it paid.

The Cons Of Offering Paid Internships

Let’s be real, no one prefers to not get paid. But as a small business owner, it may not be in your budget to offer a paid internship. If you’re unable to compensate your interns, that’s okay – but they must receive academic credit instead and ideally, an impactful experience as well. 

If your business has the means to pay your interns, it’s highly recommended that you should. If you think you’re saving money or time by avoiding paperwork, it’s not worth it in the long run and can damage your reputation and even company morale.

Preparing To Hire An Intern? Here’s How HR Can Help

Planning ahead is crucial to the success of your internship program. If you don’t know where to start, HR can help you determine payment guidelines for an internship. Here’s what HR can do to make your interns give glowing recommendations: 

  • Develop a policy. An internship policy will set the tone prior to an intern starting so they’re aware of what to expect and any company rules, values, etc.
  • Define job duties. Clarifying the job role informs the intern of what their responsibilities include in order to be prepared for the role and what’s to come. 
  • Define supervisor roles. Identifying the intern supervisor is a must. Interns need mentorship in order to be successful. 
  • Implement evaluations. Coordinating check-ins and reviews allow the intern to know how they are doing, how they can improve, or any feedback they can share to benefit their experience. 

Lean on HR professionals to create an impactful internship program for your organization. Need kick a** HR? Get started today.