As a small business owner, you have many decisions to make when it comes to managing your company. One of those decisions may be whether or not to pay your summer interns. It’s a complex issue that requires careful consideration of a variety of factors, including legal requirements, the benefits of paying interns and the potential costs of doing so.
Legal Requirements: Understanding the Fair Labor Standards Act (FLSA)
The US Department of Labor (DOL) abandoned its six-part test for distinguishing between interns and employees under the FLSA and currently follows the "primary beneficiary" test to determine if an intern is entitled to pay.
If the intern is the primary beneficiary, they need not be paid. If the employer is the primary beneficiary, then the intern must be compensated.
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The primary beneficiary test is a "flexible test" with seven non-exhaustive factors:
No expectation of compensation
The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed or implied, suggests that the intern is an employee—and vice versa.
Training similar to an educational environment
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.
Ties to the formal education program
The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
Corresponds to the academic calendar
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.
Complements, rather than displaces, paid employee work
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.
No entitlement to a paid job
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 all seven of the FLSA criteria are met, then the intern may be unpaid.
Benefits of Paying Interns
Many small business owners still choose to pay their interns, even if they’re not legally required to do so. These benefits are worth consideration when determining whether or not to pay your summer interns:
Higher Quality of Candidates
Paying interns can help attract a higher quality of candidates. College students and recent graduates are looking for paid opportunities to gain work experience, and offering a salary or stipend can make your internship more appealing to them. This also sets your business up to potentially bring on someone who is especially talented or motivated.
Commitment and Responsibility
Paying interns can help ensure that they take their responsibilities seriously and are committed to the job. They may feel a greater sense of obligation to show up on time, complete their tasks and be an engaged member of the team. On the flip side, if an intern is unpaid, they may be less motivated to work hard or take the internship seriously.
Skilled Worker Pipeline
By investing in your business' interns, you can create a pipeline of skilled workers who are familiar with your company culture and processes. This can be especially valuable if you are looking to grow and expand in the future.
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As a small business owner, you likely don't have the same budget as larger organizations. So, it's essential you carefully consider whether or not you can afford to pay your summer interns and how much. That said, there are ways to minimize the costs, such as offering part-time internships or providing a stipend instead of a full salary.
By only requiring interns to work a few hours a week, you can reduce the amount of money you’ll need to pay them. This can be especially useful if you need extra help during the summer months but don’t have the resources to hire a full-time employee.
A stipend is a fixed amount of money that an intern receives for completing the internship. While it’s less than a full salary, it can still be a meaningful amount that demonstrates your commitment to them. Stipends are especially useful for small businesses that operate on a tighter budget but still want to provide some financial support to their interns.
Determining Pay: Average Pay for an Intern
When it comes to determining how much to pay your interns, there are a few factors to consider. One is the going average pay for an intern in your industry and geographic region. This can vary widely depending on factors such as the level of experience required and the specific duties of the internship.
You can research average intern salaries online or you can consult with your local high school or college placement center where counselors may be able to give you some direction on what other employers in your area are paying.
You could also consult with a reputable professional employer organization (PEO), like Axcet HR Solutions. Axcet helps clients with market compensation benchmarking and provides recommendations. Pay levels for internships are typically determined by a student’s year in school and field of work.
Another factor to consider is the level of responsibility and complexity of the tasks your intern will be performing. If your intern will be taking on significant responsibilities or working on complex projects, you may want to pay them more than someone who will be doing more basic tasks.
Clearly Communicate About Pay
It’s important to communicate with your interns about what they can expect in terms of compensation. This can include outlining the pay rate or stipend amount, as well as any benefits or perks they may receive, such as access to company events or networking opportunities.
Legal and Ethical Implications
While studies at higher education programs show there is a better success rate placing students in jobs who have successfully completed internships, many still argue for at least minimum wage pay for interns. In fact, many consider not paying interns for their labor to be an ethics issue.
So, while the FLSA guidelines provide some flexibility around paying interns, it’s still important to ensure that you’re complying with all applicable laws and regulations. If you’re unsure about whether or not you should pay your interns, it’s always a good idea to consult with your Axcet HR professional or an attorney who can provide guidance based on your specific situation.
Among the issues surrounding internships is whether the FLSA even applies to interns. The FLSA does not define “intern,” nor does it provide an exemption from minimum wage or overtime for them. Most HR and legal practitioners, however, take the view that an intern is defined as a professional in training, and employers using an intern’s services should adhere to the standards set forth under the FLSA.
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General rule: When in Doubt, Pay the Student
In addition to the government enforcement efforts, students are more aware of the issue, and there are an increasing number of lawsuits filed by unpaid interns claiming back wages and possible overtime under both the federal FLSA and state laws.
Hiring summer students is a great way to help youth in your community learn what it takes to be successful in business while helping employers get special projects completed. Plan carefully and do your homework so that the summer internship program is a great experience for everyone. Still have questions? Reach out to one of our experienced HR consultants today >>