Before you hire paid or unpaid interns, you need to know your legal requirements as an employer. Here are a few questions to think through before kicking off your intern search.
Question #1: Should I hire a paid or unpaid intern?
For many small businesses, an internship program is a smart way to find up-and-coming talent.
However, make sure your program is educational. Or in other words, your intern should get something out of the experience. So if you’re thinking of using an internship as a fast way to find cheap labor, you might want to rethink things.
Setting clear expectations upfront will help you steer clear of possible misunderstandings that could lead to legal action. It will also mean a smoother ramp-up.
Before talking to candidates, collect your answers to the following:
- Compensation (more on this below).
- Who they’ll report to.
- Their schedule.
- How long the internship will last.
Question #2: Do I have to pay my intern?
If you’re a for-profit company, you’ll probably have to pay your intern. Nonprofit companies in the public and private sector may be allowed to have unpaid interns if they pass the Department of Labor (DOL) test below.
But tread carefully—you have to be crystal-clear that the internship can’t be interpreted as employment. Plus, you want your intern to have a good experience with your company, which can be hard if the gig turns into a financial burden for them.
The new DOL test for unpaid interns.
As of January 2018, the DOL uses the primary beneficiary test to help companies get their answer. Ask yourself these seven questions:
- Are you and your interns clear that they won’t be paid for their time?
- Is the internship similar to what your intern would learn in a school environment?
- Is the internship tied to their studies, and will they earn school credit?
- Do the hours accommodate their academic schedule?
- Will the internship last only as long as they’re learning something that helps them with their current studies?
- Is the intern not going to replace staff, but complement the work of paid employees?
- Do you both understand that the internship won’t necessarily lead to a job when it’s over?
Did you say “yes” to each question above? Then you may be able to hire unpaid interns on a volunteer basis. (You can apply by using this form.)
However, be aware that even companies that fit the criteria above may not be in the clear. State and local labor laws often trump federal laws, so see what your state labor department has to say.
Word to the wise: In most cases, it’s safest to hedge your bets and just pay your interns.
Question #3: Do I have to pay my intern overtime?
The Fair Labor Standards Act (FLSA) says that if a nonexempt employee works over 40 hours in a week, they need to be paid overtime on top of minimum wage. So if your intern is nonexempt and works over 40 hours, then yes, they need to be paid overtime.
Plus, certain states like California have additional rules around overtime that you will have to follow. So be sure to track hours carefully and pay overtime when it’s due.
It’s also important to pay your intern as either a part-time or full-time employee, not as an independent contractor. If you go the part-time route, you may or may not have to provide benefits, so it pays to know what your state says.