Federal laws on hiring and paying interns

If you’re among those who think interns and volunteers all work for free, the Fair Labor Standards Act (FLSA) says, think again.

More student interns are entering the job market than ever. Internships were deemed the “new entry-level job” by Time magazine in 2018. But just as internships have risen in popularity, so have the number of FLSA violations concerning the payment of interns and volunteers.

The fact of the matter is interns deserve to be paid if they’re benefiting your company in any way. This is especially so if that benefit outweighs the educational experience they’re earning. If you’re using interns for free labor, your business may be violating federal guidelines on compensating interns and volunteers.

As with most FLSA regulations, the rules around interns and volunteers can be tricky to navigate. And they depend on the intern or volunteer’s age, responsibilities, and work hours, among other criteria. So we reached out to top employment experts to get the answers to your toughest questions about interns and volunteers.¹

The National Association of Colleges and Employers (NACES) defines internships as learning that “integrates knowledge and theory learned in the classroom with practical application and skills development in a professional setting.” Internships allow students to gain valuable experience in real-world settings and network with those in their field of study. Hiring interns gives employers “the opportunity to guide and evaluate talent.” 

The FLSA defines volunteers as those who “donate their services, usually on a part-time basis, for public service, religious, or humanitarian objectives.” They are not employees of the nonprofit or organization.

Both internships and volunteer work can be unpaid. But the main difference between them comes down to motivation. Altruism, or the desire to do public service or support religious or humanitarian efforts, often drives people to volunteer. Among volunteers, there is no expectation for compensation. 

Often, interns are driven by a desire to advance their careers or professional standing. And they can work closely with someone in their field of study at a for-profit company. Interns are often expecting pay, college credit, or work experience that can help them earn a higher paying job.

Interns should be paid for their work when the business is the primary beneficiary of the employer-intern relationship. The FLSA requires employers to pay all employees for their work. But not all interns qualify as employees. Employers can use the “primary beneficiary test” to determine if they should pay their interns. This test helps determine who benefits from the employer-intern relationship. 

Interns may be unpaid and not considered employees if they meet any of the following nonexhaustive factors:

1. The employer and the intern understand that the intern is not entitled to compensation for work performed. 
2. The internship is similar to training given in an educational environment. 
3. The intern receives a receipt of academic credit upon completion of the internship or has integrated coursework they complete during the internship.
4. The internship accommodates the intern’s academic commitments and corresponds with the intern’s academic calendar.
5. The internship experience is for the benefit of the intern’s learning and development.
6. The intern does not displace or supplant regular employees or perform duties typically performed by regular employees. 
7. The intern is not entitled to a job after the internship.

“Other relevant evidence may be considered in determining an intern’s employment status, and no one single factor is dispositive,” Goldstein says. If an intern or student does not meet any of the above criteria, then the employer must pay and treat the intern as a regular employee.

“Generally, the more the intern’s work is dedicated to a classroom, academic, or training experience, the more likely the intern will be seen as exempt from the FLSA,” explains Mulroy. “If the intern routinely contributes to the business’s operations, or the business is dependent on the intern, it is more likely the intern will be subject to the FLSA.” 

It’s also important to remember that state laws on internships can vary. “Employers should be advised that the preceding information applies only to the FLSA. Many states and municipalities have their own tests that control employment determinations for interns,” Mulroy says.

Key takeaway:

Strict federal guidelines determine whether an intern is entitled to pay. As a rule of thumb, ask yourself who is receiving the primary benefit of the internship. If the answer is not the intern, they could be entitled to compensation. Check your state laws and speak with an employment counselor to ensure you’re compliant.

The U.S. Department of Labor (DOL) does not allow volunteering for private, for-profit businesses. The majority of volunteers do not have to be paid, as long as

• There is no expectation of pay.
• They are working with a nonprofit or public service.
• They’re not employees of those organizations. 

As there are no expectations of pay, individuals may lawfully volunteer their time, typically on a part-time basis, to a religious, charitable, or nonprofit organization. But nonprofit employees have been misclassified as volunteers, Goldstein notes. 

Those who market materials, run a gift shop, provide services for a fee, or do other profitable activities are not considered volunteers. Typically, “commercial activities” by nonprofits are done for a business purpose and may have “substantial competition with other businesses.” 

In 1985, Congress amended the FLSA’s guidelines on public agencies and employee volunteerism. Public sector, government employers can’t ask their employees to volunteer additional time to do the same work they’re employed to perform. The DOL allows public sector employees to volunteer in their jurisdictions to perform work that isn’t what they’re employed to do. Similarly, public sector employees can volunteer in different jurisdictions to perform work similar to what they’re employed to do. 

There are three additional factors that public sectors can use to determine if a volunteer isn’t entitled to pay.

1. The volunteer does not receive, nor expects, pay for their service.
2. The volunteer offers their services for a civic, charitable, or humanitarian purpose. 
3. The volunteer provides services without pressure or coercion on behalf of the public sector.

Key takeaway:

Volunteers are just that: volunteers. They volunteer their services to public agencies or nonprofits without the expectation of payment. The DOL does not permit volunteering for a private, for-profit organization. There are a few key guidelines that can help you determine when a volunteer should be an employee.

An estimated 60% of internships are paid, according to a 2015 NACES report. The NACES report focused on the impact of unpaid internships on career development for students attending the University of Georgia. Paid internships resulted in a higher hire rate and an improvement in professional skill development. Unpaid internships showed a lower hire rate but resulted in higher academic performance.

Business owners might want to consider an unpaid internship if they want to help students get better acquainted with their industry. A business owner might offer a paid opportunity if they’re hoping to hire the intern at the end of the internship. If a business owner is trying to decide between a paid or unpaid internship opportunity, the most important question to address is “who should benefit from this internship?” 

Unpaid internships are only legal when the intern benefits the most from the internship opportunity. Unpaid internships are “largely academic exercises,” says the NACES report. “Unpaid internships represent more experimental, academic activities that offer early opportunities for immersion and socialization in a chosen field.” 

Typically, the business benefits more from work performed in paid internships. Paid opportunities can greatly influence a student’s career development, as well as create meaningful connections within their chosen field. 

There are no restrictions on how many hours an intern or volunteer over the age of 18 can work. Volunteers or interns under the age of 18 may fall under the FLSA’s guidelines for child labor. As a result, there are some restrictions on the number of hours they can work in a day and a week.

Paid interns are seen as employees, so they may fall under the FLSA’s guidelines for overtime pay. But there are no federal limits on the hours they can work. There are no federal limits on the number of hours unpaid interns and volunteers over the age of 18 can work per week.

States may have their own laws, Krugel says. But generally, “it’s a good idea not to have them work more than 40 hours in a week.”

If you’re unsure of how long your interns have been on the clock, have them track their time just like any other employee. Asking unpaid interns to track their time can help you determine how much time they’ve spent on projects or tasks. 

The federal minimum wage ($7.25 per hour) applies to paid interns. But some states and specific cities or counties may have their own minimum wage laws. Research your state’s minimum wage requirements before determining an intern’s pay rate. If state laws conflict with federal standards, follow the rule that grants a higher minimum wage to your intern.

Minimum wage laws do not apply to unpaid interns. But strict regulations on unpaid interns means “there’s much greater scrutiny being placed” on these positions, Krugel says. Business owners should be careful not to offer unpaid internship opportunities unless they’re certain the intern is the “primary beneficiary” in the relationship. If you’re unsure, check with your local employment counsel to ensure you’re compliant with minimum wage laws.

The FLSA’s overtime law applies to paid interns. The current federal overtime law kicks in after nonexempt employees have worked over 40 hours in a workweek. After that, they’re entitled to pay at time and a half. 

The FLSA’s overtime law doesn’t apply to unpaid interns and volunteers. This is not the case for interns deemed employees, per the “primary beneficiary test.” The beneficiary test helps business owners decide who stands to benefit the most from the employer-intern relationship. If the intern benefits the most, they may be unpaid. If the business benefits more, then the intern should be considered an employee.

The most common legal mistake happens when business owners make assumptions about unpaid interns. Business owners shouldn’t assume that any non-compensation agreement with an intern or volunteer is compliant with state and federal wage and hour laws.

A compensation agreement between an intern or volunteer and the business owner is one of six criteria for determining payment. Overall, business owners need to ensure their interns receive the majority of the benefit from the internship.

But employers can make other mistakes when hiring interns and volunteers. This includes forgetting to treat paid interns as W-2 employees or not training them for their positions. Replacing employees with interns, not withholding taxes for paid interns, and not supervising interns can lead to legal disputes, Mulroy says. 

“Some employers simply drop interns off to a group manager with no instruction,” Mulroy elaborates. “The manager then assigns the intern tasks and errands that typically offer no educational benefit.” Mulroy suggests training managers on how to work with and treat interns on the job.

Another potential legal mistake is using interns to fill needed positions. Interns should never take away from the work of others at the company, nor should they replace anyone. 

“Generally, interns and volunteers aren’t supposed to take away work from regular employees, and too often, that’s what happens,” Krugel explains. 

Determining what work a paid or unpaid intern can perform can be difficult. Generally, they shouldn’t be running errands that don’t benefit their education. But they also shouldn’t be handling sensitive company or customer data reserved for senior workers.  

Key takeaway: 

Not all interns are employees, but that doesn’t mean you should ignore federal wage and hour laws that might apply to them. Remember that internships should have educational benefits. Interns are not intended to take work away from regular employees and should be excluded from private company information.

The DOL and FLSA consider anyone under the age of 18 to be a minor and subject to child labor law regulations. The FLSA considers 14 years the minimum age for employment. But state child labor laws can vary and may provide further stipulations or restrictions for child workers. 

No matter where you live, you should take child labor laws seriously. The FLSA outlines that children should not work in areas declared hazardous, including areas that have been evacuated due to natural disasters. Children also shouldn’t work in certain industries nor operate heavy machinery until they’ve reached a certain age. Mulroy also notes, “the most common violations include hours of work,” as youth interns shouldn’t work overtime hours. 

“It depends on the state,” Krugel explains further. “But generally, student interns can’t work overtime, can’t work past certain curfews, can’t take [work] away from regular employees, and can’t be called an employee.” Meanwhile, state laws usually dictate how much student interns can earn. And if state and federal laws overlap, the law that’s more protective of workers under age 18 will apply. 

To provide additional information on lawful youth employment, the DOL has set up Youth Rules! for teens.

Every business owner should familiarize themselves with the relevant state and federal laws regarding interns and volunteers. Additionally, seeking the counsel of an employment law expert can help them ensure their business is compliant. 

Hiring interns can be tricky. And failing to comply with regulations can cost business owners thousands of dollars in lawsuits and back pay. Plus, these laws are always subject to change, meaning business owners need to re-evaluate them yearly. Mulroy explains these laws are always changing due to “statutes, regulations, as well as administrative and court decisions.”

Mulroy’s advice is to always seek the help of experienced wage and hour practitioners before developing an internship or volunteer program. “The cost of getting good litigation avoidance advice is preferable to the greater expense of defending a lawsuit or DOL administrative action,” he explains.

Business owners are not obligated, by law, to give an intern or volunteer notice of termination. You can terminate interns at any time, as long as your reasoning doesn’t violate federal regulations on discrimination.

Even though interns are not the same as employees, you should never take lightly terminating a student’s internship early. In many cases, interns will need to complete a set number of hours to receive academic credit for their internship. If an intern is damaging equipment, making other employees feel unsafe, or performing illegal actions while at work, immediate termination may be required. 

If that’s the case, there are only some termination restrictions that pertain to discrimination you’ll need to consider. The reason behind the termination cannot violate Equal Employment Opportunity Commission (EEOC) guidelines or Americans with Disabilities Act (ADA) regulations. Other than these restrictions, you can terminate an internship at any time with valid reasoning.

Understanding legal regulations can be overwhelming. So consult your employment counsel if you’re unsure about the status or role of an intern or volunteer. When it comes to interns and volunteers, there are three major points to keep in mind. 

1. There are strict guidelines you need to follow when determining whether or not to pay interns. When in doubt, ask yourself who will benefit the most from the experience. In most cases, the answer is the business, so interns deserve to be paid.
2. There is no federal restriction on the number of hours an unpaid intern over the age of 18 can work. Minimum wage and overtime laws apply to paid interns. 
3. State laws may have more guidelines on hiring interns and volunteers. 

Mark S. Goldstein is a senior associate in the New York office of Reed Smith and a member of the firm’s Labor and Employment team. Goldstein’s practice defends employers in a wide range of employment litigation matters. Goldstein has provided workplace training to managers and human resources personnel and has drafted employee handbooks and individual workplace policies for compliance with federal, state, and local laws. 

James R. Mulroy is the Office Managing Principal of the Memphis office of Jackson Lewis PC. He has more than 30 years of trial and litigation experience, and he has represented clients in dozens of labor and employment cases. He regularly counsels clients on a broad spectrum of employment-related issues, including FLSA compliance.

Charles A. Krugel is a management-side labor and employment attorney, as well as a human resources counselor. He has more than 20 years of experience in his field and has been running his own practice for the past 15. He serves small and medium-sized companies across industries. Besides providing traditional labor and employment law services, Krugel has negotiated hundreds of labor and employment agreements and contracts.