Summary. Yes, you have to pay interns in almost all cases. Unless the internship experience that your business offers passes all of the primary beneficiary tests, you must compensate interns for their work hours. Aligning your business with an academic program at a local university is the best way to find unpaid interns, as it helps pass many of the primary beneficiary tests automatically.
Internships can be a valuable learning experience for young professionals or individuals who may be new to a specific industry. Companies can benefit from their fresh perspectives, skill sets, and extra hands for larger projects. The arrangement should always benefit both parties, whether the relationship includes payment or not.
Businesses looking to hire interns but not provide them with financial compensation may face a unique set of legal and ethical challenges. It’s important to understand what is legal in the United States and how this may impact your relationship and the overall employment of your intern during the period they work with you.
Key Takeaways
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Because interns are not technically considered employees, they are not required to be paid for their work under the Fair Labor Standards Act (FLSA)
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States will vary on their requirements for unpaid internships, so it’s important to check with your state’s labor department to better understand the criteria you must meet.
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It is legal to not pay your interns as long as the intern is the primary beneficiary of the working relationship. You can determine whether or not the intern is the primary beneficiary by taking a short test provided by The Department of Labor.
The Subjective Nature of Internship Payment
The Fair Labor Standards Act (FLSA) outlines that any employee of a for-profit company must be paid for their work. However, individuals working as interns at your company are not considered employees. It is legal to not pay your interns as long as the intern is the primary beneficiary of the working relationship.
Unfortunately, this criterion is extremely subjective. Interns and employers will have different viewpoints on who may benefit from the overall relationship. Additionally, states may bring different legal requirements and regulations that muddy up this already gray area, bringing costs upon the employer that may outweigh the benefit of hiring an unpaid intern.
State Legislation
Due to the federal requirements being so subjective, it’s important for employers to check in with their state before hiring for internships. Depending on the state your business operates in, you may need to adhere to stricter standards or be subject to a beneficiary test, which we’ll discuss in more detail below.
California, for example, has one of the strictest stances on internships. The state requires all companies that offer internships to be supervised by an accredited school or vocational program. They are also required to submit a proposal to the Division of Labor Standards Enforcement before hiring for an internship.
Conducting a Primary Beneficiary Test
The best way to understand whether or not the employee or employer is the primary beneficiary of an internship is to provide a test. The Department of Labor provides employers that work for for-profit companies with a flexible seven-part test that helps to determine whether their interns are volunteers or should be considered employees.
The primary beneficiary test states that interns are the primary beneficiaries if they meet the criteria:
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They are aware they will not be compensated for their work
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Training is similar to what they received at an educational institution
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The internship will provide the intern with academic credit
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The internship is accommodating and flexible in considering the intern’s academics
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The internship is for a limited time period
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The intern’s work does not replace existing employees’ work — rather, it provides beneficial learning and complements existing work.
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The intern understands the internship does not provide a job at its conclusion.
If at the end of this test, it’s determined that the employer is the primary beneficiary, then the intern is entitled to at least minimum wage for their work. Unfortunately, even using this test can be subjective as it does not provide definitive rules and acts more as a set of guidelines rather than rules.
Risks to Hiring Unpaid Interns
For many companies, hiring unpaid interns may be beneficial to the business. It can help solve a need within the company while being mutually beneficial to the hired intern. However, because there are so many nuances in state regulations and ambiguity in federal regulations, there may be some risks associated with hiring unpaid interns, including
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Legal risks. Be sure to contact your state’s Department of Labor Wage and Hour Division to determine if the FLSA applies to your proposed internship. It’s recommended to err on the side of caution and be very clear about your expectations if you plan on not paying your intern. Report and document everything.
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Poor performance. Without pay, motivation may falter. We’d all like to think that we get into our careers because of our underlying passion, but the truth is money is a motivator. The quality of talent in an unpaid internship may fall flat for the company as opposed to one that offers reasonable financial compensation.
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Negatively affects the student. When hiring interns that are either currently in college or have recently graduated, it’s important to consider their financial status. Many are just starting out and must pay back student loans. By not paying your interns, you may be contributing to the student debt crisis.
Unpaid internships can be an ethical debate for many. Some companies believe that all employees deserve to be financially compensated for their work, while others believe that experience and skill gain is enough compensation. Regardless of your choice, it’s important to understand your specific state’s legal requirements for unpaid internships.
If you’re interested in providing an unpaid internship, consider taking this short survey to determine whether or not your employee is required to be paid.
Paying Interns FAQ
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Is an unpaid internship unethical?
Yes, unpaid internships can sometimes be considered unethical in practice as it promotes the expectation that students’ work is not worth financial compensation.
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Will unpaid internships make my business look bad?
No, unpaid internships won’t make your business look bad. But remember, all employees, including interns, can have an effect on your business. It’s up to the employer to decide whether they’d like that view to be good or bad.
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What are some pros to unpaid internships?
Pros of unpaid internships can include helping interns receive college credits and providing them valuable work experience and networking opportunities they may not otherwise get.
Author
Caitlin Mazur
Caitlin Mazur is a freelance writer at Zippia where she has written 140+ articles that have reached over 1 mil viewers as of June 2023. Caitlin is passionate about helping Zippia’s readers land the jobs of their dreams by offering content that discusses job-seeking advice based on experience and extensive research.
