A Guide to Paid and Unpaid Internships: Staying Compliant
The guide explains how internships benefit both employers and interns by providing industry experience and affordable labor, outlines the factors influencing internship programs such as payment and regulations, and highlights business advantages including cost savings, talent vetting, and brand enhancement while emphasizing the importance of compliance.
Internships have great potential to be a win-win for both employer and intern. The intern gains knowledge about an industry and a position, as well as a glimpse of the responsibilities of working for a business—whether in the field or an office. As an employer or manager, you reflect on your processes when training and employing an intern, and you also gain the assistance of an eager and willing person who is ready to help with a range of tasks in order to learn.
Of course, internships must be handled differently depending on the industry and the business. Variables include where to look for interns, how organized and demanding the internship program should be, and whether the intern or interns should be paid. Another important factor is what kinds of regulations govern internships, and how best to remain compliant while taking advantage of this opportunity.
Especially in uncertain times, interns can be a boon to your business at a low cost or no cost, while providing young people or career-changers with an entry point into the workforce in a difficult hiring market.
Why hire interns? A business case
There are many business and HR advantages to hiring interns. Interns can save money on hiring while increasing productivity and profitability. Practical advantages for the business include:
- Access to inexpensive labor. Interns learn by doing, and any help they give comes at either no cost or a lower cost than the labor of a typical employee.
- A pool of potential hires at your fingertips. Advertising for an internship connects you with people interested in your kind of work.
- A chance to vet a prospective employee over time. An internship program allows you to assess a person’s knowledge, skills, and abilities (KSAs) more thoroughly than through resumes or interviews.
- Strengthen your brand and community standing. Hosting interns casts a positive light on your brand and can build relationships with your community, supporting diversity efforts.
Internships are also beneficial to the intern by providing:
- A first-person view inside a certain industry or job before investing in education or starting a career
- A competitive advantage when looking for a job
- A network of contacts within a field or industry
- Experience with meeting workplace demands and reaping the rewards
HR’s role in internships
If an internship program hasn’t been established yet, HR can play a role in convincing company executives of its practical and public benefits.
Once an internship program is established, the HR department has the primary responsibility for its success. This includes holding periodic meetings with department heads where the intern is working to check on progress or issues, as well as meeting directly with the intern to hear their perspective.
Ensuring an intern is satisfied, and switching them to a different department if needed, could make the difference between benefitting and not benefitting from their presence. HR might also gain useful insights on departmental culture and any negative behaviors from interns, who may be more candid than employees.
Legal issues and compliance concerns
There are legal and compliance issues to consider when hiring interns, especially if you don’t plan to pay. Some issues are age-related. For example, companies should avoid violating state and federal child labor laws by hiring interns under the age of 18. They should also avoid discriminating against older applicants seeking internships based on age.
The Fair Labor Standards Act (FLSA) includes provisions regulating when an intern must be classified as an employee and when they do not need to be. At private, for-profit sector businesses, most interns are considered employees under the FLSA and covered by minimum wage and overtime pay laws. However, the government provides a way to determine if you can legally hire an unpaid intern.
Unpaid internship defined
An unpaid internship is a position in which a person agrees to do certain tasks without pay in order to gain non-monetary benefits, such as academic credit, training, or real-world knowledge applicable to their careers.
The test for qualifying unpaid interns and students
In 2018, the Department of Labor (DOL) relaxed the rules for legally hiring an unpaid intern. The previous six-factor test has been replaced by the “primary beneficiary” test—a seven-factor test that covers expectation of pay, training, and academic credit to determine who benefits most from the internship. If the intern benefits most, then an unpaid internship is acceptable by the government.
Best practices for unpaid internships
Legal experts recommend getting responses to three questions in writing from your potentially unpaid interns:
- 1.Does the intern understand that there will be no monetary compensation for their work?
- 2.Are both parties clear that the internship will only last while beneficial learning is still occurring?
- 3.Are both parties clear that there is no promise of a job at the close of the internship?
For interns currently enrolled in an academic or technical course of study, check if the intern’s educational institution will provide credit for the skills they are learning in the internship.
It’s important to research your state and local laws regarding interns. Some states have regulations that are stricter or different from federal rules. Consult with your legal counsel before bringing on unpaid interns.
Paid interns are employees
Paid interns are not in a separate category from employees, nor are they governed by different federal laws. Paid interns are entitled to minimum wage and overtime pay rules for employees as set out in the FLSA, among other protections. Any state minimum wage overrides the federal one, and you must follow whichever is higher.
Wages versus stipends
You might consider paying an intern a flat-rate stipend rather than a wage. At private companies, however, interns typically need to be paid the applicable minimum wage for hours worked unless their professional or academic benefit is abundantly clear.
If you are offering a lawful unpaid educational internship by DOL standards, you may provide an expense reimbursement stipend to the intern if:
- 1.Stipends are acceptable within the unpaid educational internship program (e.g., if any institution granting credit or working with you on the program allows them); and
- 2.The stipend goes toward reimbursing the intern for food, gas, etc., rather than for work performed.
Staying above board with your internship program
Offering internships can provide a great advantage to both your organization and the intern. When their learning coincides with benefits to your company, it’s a success. However, it also presents another layer of Department of Labor compliance to track, whether your intern program is paid or unpaid.
You’ll need to have records showing that you followed the law by answering the necessary questions, making arrangements with educational institutions for credit, or treating interns as employees and paying them at least minimum wage for all hours worked.
Arcoro can help you manage internships while remaining compliant from start to finish.
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