Hiring Interns? Make Sure it’s Legal

Jul 10,2020
Hiring interns? Take the test and learn how to hire interns legally, and determine the benefits of hiring paid and unpaid interns.

Hiring interns can be a valuable add to your organization for many reasons. Just as hiring interns isn’t new, neither are the complexities of U.S. Labor Laws. Making sure your organization sets up your intern program legally is the first step to successfully hiring interns. But where do you start?


Are Interns Classified as Employees?

Although hiring interns isn’t new, many organizations need to remain up to date on how to appropriately add interns to their team. The majority of interns are now classified as employees and receive payment throughout their internship or externship.

One of the main factors is understanding what distinguishes an employee from an independent contractor. According to SHRM, an internship or externship emphasizes on providing on-the-job training to an individual who has an aligned educational background in the certain field of work or specific industry, where an independent contractor are individuals who do not need guidance or training to complete their project(s). [1]

Additionally, there are many resources for employers to how to decide how to classify an employee in their business. Misclassifying an employee or independent contractor for their specific line of work without reason can result in the employer being fined in employment taxes by the Internal Revenue Service (IRS). [2]



An important decision your team needs to make is whether to hire unpaid interns or paid interns. This decision will dictate the course you need to take to ensure your internship program is legal and worthwhile for everyone. 

It is vital to determine whether the compensation is appropriate and legal. If your interns are paid, you must pay them at the minimum wage for your state that the company resides in, as well as overtime hours, if they go over 40 hours within a weeks’ time. However, if you choose to hire unpaid interns, additional steps must be taken.

While some unpaid internships can provide students with tremendous experience and benefits, some violate federal labor laws. According to the Department of Labor Wage and Hour Division (DOL), there is a test for unpaid interns and students. [3]

The Test for Unpaid Interns and Students

  1. 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.
  2. 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.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. 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.
  7. 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.


Payment Alternatives

If you’re planning on hiring interns, make sure your internship program or externship program passes the test. If not, then consider alternative payment methods such as a weekly stipend. You must compensate them fairly, and if your internship or externship is paid, the position is all the more desirable.

Interns must be paid at least the applicable minimum wage for all hours worked via weekly or bi-weekly hourly pay, or a stipend. Stipends are common practice among not only interns but also r, graduate students, and apprentices. Stipends also have a few rules compared to hourly pay. [4]


An EOR Might Be Your Solution

Knowledge Services provides administration support to many businesses across the United States, handling a number of critical, detailed, and time-consuming processes, such as intern onboarding, time tracking, payroll, taxes and insurance. With a third-party corporation to act as the employer, program leaders are allowed to focus their efforts on the success of the program.



With increased regulations and complexities resulting in greater risks of fines and litigation, Knowledge Services’ Employer of Record services can handle all the behind-the-scenes work and tax details as the official employer, while companies can focus on building an amazing internship program.

Ultimately, it is important to be aware of the labor laws in your specific state, [5] as some states enforce additional laws of their own concerning job minimum wages, rest periods, and employment age certification. Consult with a lawyer or internal counsel if you have any doubts about your hiring processes or procedures.  If you begin the internship or externship program off correctly, it can only get better in time.

[1] SHRM. Can Interns be Independent Contractors? https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/caninternsbeindependentcontractors.aspx

[2] IRS. Understanding Employee vs. Contractor Designation. https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation

[3] U.S Department of Labor Wage and Hour Division. Internship Programs Under The Fair Labor Standards Act. https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs71.pdf

[4] Indeed. What Is a Stipend and How Does It Work? https://www.indeed.com/career-advice/pay-salary/what-is-a-stipend

[5] U.S Department of Labor Wage and Hour Division. State labor Laws https://www.dol.gov/agencies/whd/state

By Knowledge Services | Jul 10,2020

Legal & Compliance