Offering an internship program through your business can be an opportunity to give back to your industry by nurturing future professionals who are looking to gain skills, helping to give them a competitive leg up when they apply for entry-level jobs. According to the National Association of Colleges and Employers’ (NACE) 2023 Internship & Co-op Report, hiring interns for the 2023 summer programs is expected to increase by 9.1% from last year. Companies even view them as a strong tool for recruitment: The NACE winter 2022 poll revealed that four out of five employers agree with that.
While college students have long pursued internships, in recent years, the practice of hiring interns has become more regulated to ensure that they will gain valuable, real-life experiences without companies trying to take advantage of the programs to leverage them for inexpensive labor. So 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 you provide an educational program and/or educational environment. Or in other words, your unpaid or paid intern should get something out of the experience. So if you’re thinking of using an internship as a fast way to find cheap or free 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 if the internship could be viewed as unpaid work. 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? Are unpaid internships legal?
If you’re a for-profit company, you’ll probably have to pay your intern. Non-profit organizations in the private and public sectors may be allowed to have unpaid interns if they pass the US Department of Labor (DOL) test below.
But tread carefully—you have to be crystal-clear that the unpaid internship can’t be interpreted as employment. Plus, the internship experience with your company needs to designed for the benefit of the intern. It can’t turn into a financial burden for them, and has to be a beneficial learning opportunity.
The DOL test for unpaid interns
The DOL developed 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 an educational institution?
Is the internship tied to their studies, and will college students earn academic credit from their school?
Do the hours accommodate their academic calendar?
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 the intern’s work complements the work of regular employees?
Do you both understand that at the conclusion of the internship, it won’t necessarily lead to a job?
Did you say “yes” to each question above? Then you may be able to hire unpaid interns on a volunteer basis (apply with this form), because that response indicates that the intern is the primary beneficiary of the internship.
However, be aware that even companies that fit the criteria above may not be in the clear. State laws and local labor laws often trump federal laws, so see what your state labor department has to say. For example, New York’s rules for interning with for-profit companies are quite specific and cover a lot of ground, including how to share internship postings and how to screen applicants, as well as how the internship cannot provide an immediate advantage to the employer and cannot provide training that isn’t transferable to another company within the field.
Word to the wise: In most cases, it’s safest to hedge your bets and just offer paid internships.
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 regarding its employment laws. And if you’re still not sure, seek out legal advice.
