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What to Know About Internship Compensation

Minimize your Employment Compliance Risk by Getting Intern Compensation Right

With summer comes an uptick in interns. Whether you have summer interns, or ones working for you during the school year, there are special considerations that should be given to interns, such as pay and ensuring a good learning experience.

The Department of Labor is the federal agency that determines if an intern is an employee and subsequently whether they should be paid or unpaid. It’s usually best practice to pay interns at least minimum wage to minimize risk of violating the Fair Labor Standards Act (FLSA). College credits are not an accepted form of compensation and cannot be offered in lieu of compensation. There are, however, some exceptions that can apply where an internship can be unpaid.

For a for-profit employer to hire an unpaid intern, a “primary beneficiary test” utilizing the following seven criteria, outlined in Fact Sheet #71 from the US Department of Labor, is used to make this determination:

  1. The extent the intern and employer understand there is no expectation of compensation associated with the internship;
  2. The extent the internship provides training similar to an educational environment;
  3. The extent the internship is tied to a formal education program (coursework or academic credit);
  4. The extent the internship accommodates the intern’s academic calendar;
  5. The extent the internship’s duration provides beneficial learning;
  6. The extent the intern’s work complements (and doesn’t displace) work of paid employees; or
  7. The extent the intern and employer understand there is no entitlement to paid employment once the internship is complete.

If based on the above factors, it is determined that the intern is an employee, then the intern would be entitled to minimum wage plus overtime. Keep in mind not all seven factors need to be met to qualify as a paid internship. Typically, if the internship benefits the intern, it is unpaid and if it benefits the employer, it would be paid. If offering a paid internship and looking to pay above minimum wage, local college career offices can be a great resource to provide market rate information. If it is determined that an employment relationship does not exist, then minimum wage and overtime provisions do not apply to the intern.

Other aspects to consider for a successful internship program include the following:

  • Create and document a meaningful role with defined tasks and responsibilities.
  • Ensure the intern understands the expectations of the role and who they can talk to if they have questions.
  • Set up a mentor for the intern. Remember that an internship is a learning experience and pairing the intern with someone with a few years of experience will foster their learning and growth.
  • Check the guidelines for reimbursement if the intern is working remotely. They, like regular employees, may be eligible for reimbursement for items such as a computer, cellphone, or office supplies, if any are a requirement for the job.
  • Set up a system for the intern to track all time worked, regardless of whether it is onsite or remote work. Be sure to explain the guidelines for tracking time to the intern, as this may be their first time doing so. All non-exempt employees should track all hours worked, including any time worked “after hours.”
  • Check your state and local laws for the requirements for unpaid internships. They can sometimes be very different from the FLSA test.

Interns can be a great pipeline for future employees, so making the experience good for both the company and the intern is worth the time and effort. This will help ensure that your interns have a positive experience during their internship and will hopefully want to come back someday as a future employee.

Ensure you’ve minimized your compliance risk for all employees, not just your interns, by checking out our 2022 HR & Benefits Checklist.

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