Many businesses want to pay their interns. Of course, this often prompts more questions than answers. How much is the right amount to pay interns? Do I pay them a stipend or regular wages? Are there any rules I need to follow?
Glad you asked! For those of you looking for more guidance around paid internships, here are some things to know.
Looking for more tips on interns? Download our free internship handbook for guidance on building a truly standout internship program.
Are Paid Interns Employees?
Right off the bat, it’s important to know that paid interns are employees. “Paid intern” isn’t a separate employment class with different rules to follow. Paid intern is effectively just a job title, like engineer or receptionist.
People often think of the term intern as meaning “pre-entry level.” In many cases, that’s fine. But just because a person is in college doesn’t mean they have to be an intern.
Paid interns are W-2 employees with the same protections as your other employees, and laws like the Fair Labor Standards Act (FLSA) and state wage and hour laws, among others, apply to paid interns—that includes such protections as meal and other breaks, and overtime wages, if applicable.
Additionally, under the Affordable Care Act (ACA), applicable large employers (ALEs) are generally required to offer employees who work at least 30 hours/week the opportunity to enroll in employer-sponsored health group insurance coverage after 90 days of full-time employment.
What about summer internship programs?
There are two exceptions under the ACA to keep in mind for paid interns: seasonal employees, and employees who work less than 30 hours per week.
If your company hires interns during the summer season only, for example, such employees may fall under the seasonal employee exception, which generally permits employers to exclude certain categories of employees who work at the same time each year and for less than six months.
Additionally, if your paid interns work less than 30 hours per week, you may be able to exclude them from group health insurance coverage as part-time employees. Furthermore, a paid intern who will work for your company for no more than 90 days may not be eligible for group health insurance coverage, depending on how the applicable plan documents define the initial waiting period.
Related Article: A Simple Guide to Exempt vs Non-Exempt Employees Under the FLSA
Now, when it comes to classifying your paid intern, they will likely be classified as non-exempt hourly employees. This is, in part, because they’re likely not managing people, and their title implies that they’re not exercising “independent judgment with respect to matters of significance” in the workplace. You can see the Department of Labor website for more detail on potential exemptions.
Salary vs. Stipend vs. Wages?
Most interns must be paid at least the applicable minimum wage for all hours worked. Under very limited circumstances, a company may participate in an unpaid educational internship program. You should make sure you understand applicable federal and state laws, and consult with your legal counsel before rolling out an unpaid internship program.
Downloadable Internship Program
Make a valuable program with our internship handbook.
Employers sometimes think of stipends when it comes to interns, and want to provide a weekly stipend rather than regular wages. This arrangement only works in limited circumstances. If your company is participating in an unpaid educational internship program, you may be able to provide an expense reimbursement stipend under limited circumstances, including the following:
If the unpaid educational internship program allows stipends; and
The program meets all the requirements under applicable federal and state law for the unpaid educational internships; and
The stipend reimburses expenses (like food or travel) rather than pays for work performed
Related Article: What is Employee Expense Reimbursement and How Does it Work?
It’s important to know that a stipend generally cannot be paid in place of regular wages. As mentioned above, paid interns are W-2 employees and are entitled to be paid at least the applicable minimum wage for all hours worked. While you can reimburse a paid intern for food or travel expenses, provided they give you receipts, but it’s generally not a good idea to provide such reimbursement by way of an upfront flat stipend.
How Much to Pay Interns
As indicated above, paid interns must be paid at least the applicable minimum wage for all hours worked and overtime wages, if they work overtime. However, you can always pay them more. Whether you pay an intern more than the applicable minimum wage will depend on the business reasons for doing so, including the market, what you can afford, and your assessment of the value of the work the intern will be performing.
Moses Balian, an HR Consultant at Justworks, suggests employers might consider paying interns at least equivalent to the highest minimum wage in the country. Why?
The first reason is that no matter where you hire in the country, you won’t have to worry whether you’re meeting the minimum wage requirements. Another reason is that in many major cities, it can be tough to cover living expenses on a lower minimum wage.
One suggestion: Pay interns on the assumption that they don’t have another income stream to broaden your pool of applicants.
Related article: How to Prioritize Diversity in Your Next Internship Program
Are interns eligible for benefits?
An intern who continues to work for you full-time after 90 days may become eligible for benefits. In many cases, however, especially for college students who have less time to work after a paid summer internship is over and they have returned to a regular schedule of classes, a continued internship could likely involve less than 30 hours of work per week. Working fewer hours may render the paid intern ineligible to participate in coverage under a group health and welfare plan.
Internship Guidelines for Employers
According to U.S. Department of Labor Wage and Hour Division, these seven factors determine whether an intern or student is actually an employee under the FLSA:
The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
The extent to which the internship accommodates the intern’s academic commitments by
corresponding to the academic calendar.
The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
If you want to know about this set of criteria, known as the primary beneficiary test, read our guide on hiring interns, the legal way.
Paying Interns with Justworks
Once you’ve determined that you want to offer someone a paid internship, you actually have to set them up in your payroll system as a W-2 employee. Setting up wage payments in Justworks is simple.
If you’re hiring a paid intern for a classic summer internship, lasting less than 90 days, onboard them as a paid intern. If you think you may want to keep the person on staff beyond that 90 day limit, onboard them as a part-time employee working 30+ hours/week.
The decision to offer paid internships can come with its fair share of considerations, but it doesn’t have to be complicated. Ensure you follow all applicable laws, pay interns a wage you think is appropriate (as long as it’s at or above the minimum wage), and both parties stand to gain value from the internship.
Looking for hiring and onboarding assistance? Justworks provides the software and compliance support to make hiring interns, employees, contractors, and vendors easy — remote or not. Learn how we help businesses grow their teams.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.