An internship program can be a great addition to your workforce strategy. Training interns is a fantastic service to your industry and provides a valuable source of future recruits for your full-time staff. However, there are compliance issues to consider. In addition, creating a truly meaningful intern experience can be challenging.
If you’d like to speak to an HR representative about your business, contact us.
In this article, we’ll examine the pros and cons of hiring interns and explain the Fair Labor Standards Act (FLSA) compliance considerations involved. We will also look at the rules guiding whether interns should receive pay and how much to pay if you do need to compensate.
Pros and Cons of Hiring Interns
As with any new initiative, you should consider benefits and drawbacks before launching a new internship program. Here are five pros of hiring interns:
Recruiting: A powerful tool for recruiting top talent, internships allow employers to meet potential future candidates and observe their work ethic and natural talents. The National Association of Colleges and Employers (NACE) publishes an annual survey with key metrics about internship and co-op programs. In the 2022 report, NACE revealed employers made offers to 68.3% of their interns and 75.5% of those interns accepted, for a conversion rate of 51.8%.
Trained candidates: During an internship, you will teach and train your interns. This will help them be better employees from the start, should they join your team permanently in the future.
Retention: When your company trains and mentors an intern who later comes onboard as a full-time employee, they demonstrate greater loyalty. NACE’s 2022 Internship & Co-op survey report also found that retention rates were 73-75% when hires had experience as an intern, but only 50% when they did not.
Fresh perspective and ideas: Want to see your company and business processes through the eyes of future customers? There’s no better way than bringing in young interns and empowering them to provide their feedback and ideas.
Strong tech skills: Interns lack business experience, but these digital natives bring innate technology skills. Typically, you can expect them to quickly pick up your organization’s software systems and sometimes even offer insightful tech suggestions.
Although there are powerful reasons to start an internship program, there are a few challenges to consider as well. Here are the three main cons of hiring interns:
Inexperience: Most interns are college-aged students. They are inexperienced and many will lack some of the poise, polish and maturity you would normally expect from employees. They typically will have no other work experience in the role you are assigning to them and have probably not worked in your industry before either.
Expense: Starting a new internship program can be costly. You will need to develop training, think about the work you can teach to interns, and then interview and possibly hire them. You also must provide equipment, space for them to work, and resources for training and on-the-job experiences. The hope is that the investment you make now will pay off in the long run with new hires who are ready to hit the ground running, although there is no guarantee you’ll find the talent you’re looking for.
Training time: Training interns takes time and dedication from your staff that would otherwise be spent on their other job duties. While the business can benefit from the work done by interns, a good internship program will return even more value to the interns in the form of training.
Employer Compliance: The Primary Beneficiary Test
Employers need to be aware of federal compliance considerations when it comes to hiring interns. First, employers must determine whether an intern is truly an intern or whether they qualify under the FLSA as an employee.
If an intern should actually be classified as an employee, there are wage and hour implications. Employers are required to pay minimum wage, overtime, and follow all applicable rules about breaks, leave, and various other workforce laws.
In 2018, the Department of Labor (DOL) issued a new test for whether an intern can be unpaid. It is called the “Primary Beneficiary Test”. The purpose of the test is to determine whether the intern or the employer is the main beneficiary of the working relationship. If the intern is the primary beneficiary, the internship can be unpaid. However, if the employer is the primary beneficiary, the intern becomes an employee.
“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.”
Do not think of the seven factors above as simple yes/no qualifiers. No one factor is considered determinative. Rather, each factor should help clarify which party benefits more. If more than half of the benefits go to the intern, then the intern is the main beneficiary.
Other Compliance Considerations
Additionally, look to your state labor laws to make sure your unpaid internship is compliant. Many states follow the primary beneficiary test, but some states also have their own rules. Be sure you are complying with both federal and state laws.
Remember that anti-discrimination and anti-harassment laws apply to your workplace and workforce including all interns. Provide interns with sexual harassment training and materials. Create an environment of safety; interns should know how to report if they are harassed and should be fully aware of the expectations for behavior in the workplace.
How Much Should Interns Get Paid?
Even if your internship technically could qualify as an unpaid internship, you may still wish to pay your interns. Paid internships are a great way to attract talented students. Within some industries, paid internships have become standard. Further, when you pay interns, you won’t have to worry about the primary beneficiary test.
If you do pay your interns, how much is considered a good rate? The average wage for bachelor’s level interns was $20.82 per hour, according to the 2022 NACE report. Most employers do not offer relocation assistance for interns. The 2022 NACE report also provides benchmark for comparison with the average starting salary for bachelor’s degree graduates was $55,260 for the class of 2020.
Ensure Compliance Before Hiring Interns
If starting a new internship program is one of your organization’s objectives, consider getting some up-front compliance help as you design and launch your program. A lawyer specializing in workforce law can help review your plan and paperwork. You can also get help from expert HR compliance consultants by exploring Asure’s Strategic HR or Total HR services.