How to Hire Paid Interns (Legally)

So you’ve decided to bring some interns into your company, mold young minds, and turn them into real professionals. That’s awesome, but do you know how much their labor is worth?

According to the U.S. Department of Labor and the California Department of Labor Standards Enforcement, there are certain standards that employers must follow when taking on interns.

Stipends paid to an intern are considered “compensation for services,” similar to regular wages. So if you want to pay an intern a stipend for his or her work, it has to be equal to the minimum wage that the intern would have received for the hours worked. However, an exception exists that allows an employer to pay interns a stipend that amounts to less than the minimum wage. This exception requires the intern to qualify as a “trainee.”

Paid Internship Requirements 

In order to qualify as a “trainee,” the internship that is provided needs to be primarily for the educational benefit of the intern and not the economic benefit of the employer. In order to qualify, the California Division of Labor Standards Enforcement (“DLSE”) uses a set of eleven requirements (six of which are derived from the U.S. Department of Labor’s Fair Labor Standards Act’s guidelines on the issue), and all of which must be met to properly classify an interns a “trainee” and thus exempt from minimum wage laws. The requirements are as follows:

  • The work that trainees perform, even if it includes the operation of the employer’s equipment or facilities, must be similar to that which they would otherwise perform in a vocational school or program.
  • The work must primarily benefit the trainees, not the employer.
  • Trainees must not displace regular employees in performing the work.
  • The employer cannot derive any immediate advantage from the work of the trainees (in fact, employers’ operations should to some extent be impeded by the trainees’ presence).
  • Trainees cannot be guaranteed a paying job at the conclusion of their training period.
  • The trainees clearly understand that they are not entitled to wages for their work time.
  • The work the trainees perform must be an essential part of a valid educational curriculum that the trainees are actively enrolled in.
  • Trainees cannot receive employee benefits.
  • The training work must be general enough so that it prepares the trainees for work in any similar business, rather than being so specialized that it only qualifies the trainee for a job with the particular employer.
  • The screening process for the training job cannot be the same as that used for regular employees (i.e., applicants should not think they are applying for paying jobs).
  • Advertisements for the training jobs must clearly indicate that they are not for paying work.

If you as an employer can satisfy all eleven conditions above, then the intern can be classified as a “trainee” and the employer is legally permitted to pay the intern/trainee a stipend equal to less than what the intern would make had he or she been earning the minimum wage. Failure to abide by all of the above criteria may expose an employer to costly damages and penalties.

Pay Interns Minimum Wage 

If as an employer, you cannot manage to fulfill all these requirements, you can pay the interns minimum wage. In order to be legally classified as an “intern,” regardless of pay, the intern’s work must still satisfy the six FLSA criteria (the first six requirements mentioned above). However, there are no similar penalties for not satisfying the above criteria when the intern is being paid a minimum wage.

Just as California’s labor laws protect full-time, hourly employees, they protect paid interns as well. As such, paid interns must receive:

  • The minimum hourly wage (note: this is increasing in California on January 1st, 2017 to $10.50 per hour statewide, and potentially more based on municipality); see our resource on the topic here
  • Overtime pay if the intern works more than eight hours in a day or forty hours in a week (1.5x normal hourly pay for all overtime hours worked and 2x normal hourly pay for all hours worked over twelve hours in a day)
  • Workers compensation benefits

This also means that an employer with a paid intern on the books must pay all payroll and employment taxes and withholdings that they normally pay for their regular employees. Noncompliance with the above can result in litigation and penalties assessed against the employer. See 7 Steps to Hire An Employee for more information. 

Note: Interns Are Not Independent Contractors 

While you may be tempted to classify interns as independent contractors, don’t! Remember an internship centers around the employer teaching and providing the intern with practical work experience, whereas an independent contractor (IC) requires no supervision or control as they complete their work assignments. In fact, an IC’s discretion over their work environment is crucial for an employer to maintain classifying them as an IC and not an employee. Since an employer’s obligations for interns and ICs drastically differ, don’t make the mistake of classifying interns as independent contractors.

Putting It All Together: Offer Letters & Job Descriptions

Taking everything from above and smashing it all together, hiring paid interns requires some paperwork. One of the easiest ways to stay compliant is to use offer letters & job descriptions for hiring (see our article here for more detail on that). To do this, it’s probably a good idea to reach out to your lawyer peeps!

Revised by: Zachary Avina – 03/06/18

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Photo by Evgeni Tcherkasski