Paid vs. Unpaid Internships: What Are the Regulations?

Internships can be beneficial to both the student and employers. The student gets the opportunity to explore a career interest, apply what they’ve learned in the classroom in a professional setting and develop new, transferable skills. Employers gain new, innovative perspectives to their small business, help with project work and increased productivity. However, the big question employers may have is, whether to pay or not to pay for internships.

Employers need to be aware that paid and unpaid internship programs are subject to applicable federal and state labor regulations. Generally, if your company is a for-profit, private sector employer, any interns you hire would be considered employees. They must be paid at least minimum wage and overtime compensation for hours worked over a 40-hour workweek per the Fair Labor Standards Act (FLSA).

However, there are some circumstances in which interns may not be paid while participating in an internship at a for-profit company. To determine if the internship can be unpaid, the following six criteria from the U.S. Department of Labor Fact Sheet #71 must apply:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
2. The internship experience is for the benefit of the intern.
3. The intern does not displace regular employees, but works under close supervision of existing staff in the workplace.
4. The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded.
5. The intern is not necessarily entitled to employment at the conclusion of the internship.
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

If your internship program meets all of these factors, the intern is not considered an employee and doesn’t have to be added to the payroll. Additionally, internships in the non-profit and government sectors may not have to be paid, especially if the individual is volunteering their time to the non-profit organization without the expectation of being paid.

In general, just remember, if your business is for-profit and the intern performs productive work that benefits your business, you need to pay them. If your internship program is structured around a classroom or academic experience, you likely won’t have be pay them.

The goal of internships is professional development and that can include leadership training you’re your current employees. Jobs and training comes in many, many forms but it can be confusing.

If you have any questions concerning the FLSA guidelines and whether you need to pay your interns or not, contact The Payroll Department at 317-852-2568. We can help you determine your intern’s role and their employment situation. As a payroll provider, we know that our payroll services often include providing answers to murky questions. By evaluating their role upfront, you can save your company from potential legal repercussions and a negative image in the future.

– Ariane of The Payroll Department blog team