4 Ways to Help Make Paid Internships Work for You and Your Interns

Unpaid internships can come with legal scrutiny. If you want to have interns, take the time to learn how to make paid internships worth your while.
September 15, 2017

Paid internships, if done well, are one of those things that can make everyone feel that all is right with the world.

You're bringing in relatively inexpensive talent to your business, but in exchange, you're hopefully giving someone valuable experience and molding and shaping a future employee—for you or some other lucky employer.

Still, like anything you tackle, you want to do this well, right? You certainly don't want to get it wrong. Depending on the state you live in, your internships could run afoul of the law if:

  • your internship program is too long, 
  • it doesn't hit its goals,
  • you use discriminatory hiring practices or 
  • if you underpay your interns. 

In short, you want to take your interns as seriously as your conventional employees.

So if you're thinking of starting a paid internship program, you may want to implement a few rules.

1. Forego offering an unpaid internship and set a fair rate for your interns.

First of all, if you're considering doing an unpaid internship program, it's probably best not to. Consider consulting an employment attorney or a human resources expert first, because offering an unpaid internship can have a lot of potential legal pitfalls.

According to the United States Department of Labor's website, the following six factors needs to be the case for an unpaid internship to be considered legal:

  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;
  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 a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

As a basic rule of thumb, unpaid internships need to be more about teaching and training people than anything else.

It may just be easier to pay interns a reasonable wage. According to the Small Business Administration, the average hourly rate for paid bachelor degree-level interns is $16.21.

If that's too high, “interns should make at least minimum wage," says Pamela Shand, CEO of New York City-based career counseling service provider Offer Stage Consulting.

Paid interns are essentially the same as paid employees when it comes to the law.

—Kaveh Navab, founding attorney, Navab Law

In fact, that's the law, says Kaveh Navab, who has his own firm, Navab Law, in Los Angeles. He offers up an example of an employer offering paid internships with a set pay of $10,000 over the summer.

Nothing wrong with that, but, Navab points out, “You cannot overwork the intern, say, 60 hours a week where the wages for the time worked falls below minimum wage.

"If you do have set pay," he continues, "then the work and time spend has to be proportional and within the law for pay in that state or locality. Many employers don't realize the overtime laws and protections apply to paid internship programs and that exposes them to liability under the law."

2. Classify your employees correctly.

After all, you are paying your interns, and the Internal Revenue Service will be interested in that.

Whether you'll want to go with a W-9, a 1099, a W-2 or something else when you put together paid internships, Strand suggests consulting your human resource department or an HR consultant.

“I set up all my interns up as W-9 contractors. I set them up through my payroll so there are records of all of the hours they worked and their wages [and] so everything is cut and dry in terms of taxes," says Jason Parks, owner and president of The Media Captain, a digital marketing agency in Columbus, Ohio. He usually always has two summer interns and two interns working the rest of the year.

Navab adds, “In terms of payroll you would treat them as you would any other employee and use the unusual payroll paperwork and applicable federal, state and local laws. Paid interns are essentially the same as paid employees when it comes to the law."

3. Have a reason for starting paid internships.

Beyond desiring cheap labor, that is. If that's the only reason for your program, somebody—you or the interns—is bound to come away disappointed.

For Parks, hiring paid interns makes a lot of sense because he is right next to The Ohio State University, and there's a lot of young and impressive talent he can leverage.

“In our line of work, interns can actually contribute a lot to our marketing agency because they are digitally savvy," he says.

It also helps if you want to pass on your knowledge and teach interns. As a general rule, they're interested in paid internships because they want to learn something about the industry they plan to have a career in. That's why Giuseppe Frustaci makes sure that as part of the compensation for his interns, he is paying them more than just in money.

Frustaci owns Stick Shift Driving Academy, a driving school in Fort Lauderdale, Florida. He has managed or trained 47 interns (not all at the driving school) over his career.

“As part of the compensation plan, I make sure to include and pitch the training resources that we provide," he says. "I provide a budget for my interns to take classes online, dedicate a few paid hours per week to reading relevant industry material and [offer] coaching on their resume so that the resume helps them get their next job."

Frustaci says that he has found his best interns have been the ones most interested in learning; the worst, the ones most interested in earning money.

4. Treat your paid interns well and let them make suggestions.

People working for you through a paid internship program should be treated like any other employee.

“Set a welcome and orientation session for them as well," Shand advises. “Remember, you may want to hire them one day and first impressions count. Start things off on the right foot."

Besides, your interns may be far more important to your company than you might imagine.

David Braun, a CEO of TemplateMonster, which offers templates for business websites, says that he hired a smart young man from Sweden as a paid intern. Braun, whose company is based in New York City, assigned the man to his web analytics department to help with some daily routine tasks.

“After three weeks of his work, he came to my office and he was looking very perplexed," Braun recalls. "[I] asked him what's going on and he reluctantly told me that he thinks we need to close this department since it could be completely automated."

At first, Braun thought his new intern was nuts. But he decided to ask him to write up a proposal.

“Long story short, nowadays we don't have this department at all, and the guy became CTO after successfully cutting the technical staff by 35 percent in two years," he says.

But at least by offering paid internships, Braun learned an important lesson about interns and maybe all new employees. “Never laugh before checking out their advice," he says.

Read more articles on hiring & HR.

Photo: Getty Images