By Alexandra Weber, Client Support Specialist

Do you know your legal obligations when it comes to hiring and managing interns? Interns are a great addition to a company. They can be resourceful, hard-working, and bring in fresh ideas. You may think “intern” means unpaid help, but that generally is not the case given federal wage and hour laws.

Internships benefit your business and provide students with real-world experience and skills to bolster their resumes. Furthermore, you may hire an intern that proves to be such a great addition to your team that you want to offer the person a full-time position after graduation. For the best internship experience for both parties, you need to follow the rules regarding hiring and managing interns. As a partner with a Professional Employer Organization (PEO) such as Resourcing Edge, we help you understand compliance matters and how to set the appropriate expectations for interns.

What is an intern?

An intern is someone hired to work at a company for a predetermined timeframe, with the purpose of gaining knowledge and experience about the industry. This position, or program, is called an internship. Internships should be six months or less to avoid confusion about classification and triggering certain benefits.

Historically, interns have been college students studying for a career related to your business. But increasingly, veteran employees, especially millennials dissatisfied with their jobs are taking middle-career internships or “minterships.” Business owners should not be afraid of providing an experienced worker with the chance to explore a new field they may be passionate about. The same rules will apply whether an intern or “mintern.”

Paid vs. Unpaid Internships

Whether you must pay interns depends on if they are “employees” as defined by the Department of Labor’s “primary beneficiary test.” This is an important issue because if an employee, then the Fair Labor Standards Act (FLSA) requires compensation.

The primary beneficiary test looks at the relationship between the employer and intern. Below are the seven components of the test:

  1. Expectation of no compensation is clear
  2. Training is similar to what would be given in an educational setting
  3. Work is tied into the intern’s education, such as receiving class credit
  4. Work schedule accommodates in relation to academic calendar
  5. Internship timeframe is limited to a period that provides beneficial learning
  6. Internship complements other paid positions, not replaces them
  7. Intern is not promised a paid position when the internship ends

If a business can prove that the internship meets these seven components, then the FLSA does not consider the interns employees and employers are not obligated to pay them. The bottom line is that an unpaid intern, not the employer, should primarily benefit from the internship.

Paid interns are non-exempt employees that must be paid at least one and one-half times their pay for any hours worked over 40 per week, according to federal law. State laws, such as in California, may have additional OT requirements. An intern is not an independent contractor and cannot be paid as a 1099 worker. Keep in mind the paid interns also are covered by workers’ compensation for injuries at work.

When in doubt, employers should pay their interns to avoid any ramifications. Most for-profit companies have trouble meeting the “primary beneficiary test” for their interns.

Do Interns Get Benefits?

Paid, full-time interns may be eligible for healthcare benefits through their employer. The Affordable Care Act (ACA) requires employers to offer health insurance for full-time staff if they have at least 50 full-time employees. Full-time employees are those who work at least 30 hours each week on a regular basis for a minimum of 120 days. Seasonal employees can be excluded from the ACA’s requirements. Seasonal employees typically work 6 months or less at the same time each year, such as retail holiday workers or landscaping jobs.

The FLSA doesn’t require employers to give interns paid time off. However, some states and cities have their own specific sick day requirements that could apply to paid interns.

Paid interns may be eligible to participate in a company 401(k) if they meet the individual plan’s eligibility requirement and have worked 1,000 hours.

Some Important Things to Note 

  • It’s best practice to create a job description, even for intern positions. This way, their duties are clearly stated and they know what is expected.
  • Make a list of goals that the internship should achieve, both for the employee and the company. Share the goals with the intern.
  • Always have paid interns sign-off on a handbook acknowledgment if your company has a handbook.
  • Consider having regular evaluations with interns so they know what they are doing well and how they can improve.
  • If you are hiring a minor, additional federal and state labor laws may apply.
  • Interns can be more susceptible to discrimination and harassment. It is critical for a company to practice anti-discrimination and harassment policies. Be extra attentive with interns.

Resourcing Edge is here to answer your questions about interns. By partnering with Resourcing Edge, you will have a team of HR pros to help you manage your internship programs and give advice on interns in the workplace. Call 877-703-8010 or email hrservices@resourcingedge.com with additional questions.

Alexandra Weber is a graduate of Bowling Green State University. She works in the Client Services Department at Resourcing Edge.

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