Do You Have to Pay Summer Interns? It depends!
According to the National Association of Colleges and Employers (NACE), 56.7% of graduating seniors in the US had completed at least one internship, co-op, or field experience. Furthermore, 48.3% of these experiences were paid, while 51.7% were unpaid. Although unpaid internships can provide valuable experience, the Department of Labor has clarified that interns must be paid at least minimum wage in most cases. Some states have clear internship compensation guidelines for employers as well.
Misclassifying interns as unpaid can lead to lawsuits and financial penalties for employers. In recent years, the number of lawsuits from interns claiming they were misclassified as unpaid and therefore entitled to back pay and damages has increased. A study by the Economic Policy Institute found that between 2010 and 2018, interns won $7.4 million in back wages from employers who misclassified them.
According to a survey conducted by Glassdoor in 2021, the median monthly base pay for interns in the United States is $3,333, which translates to an annual base pay of approximately $40,000. However, this varies significantly by industry, with technology and finance industries offering higher median pay for interns, while non-profit and government sectors provide lower pay.
The Department of Labor (DOL) guidelines allow employers to have non-paid internships as long as they adhere to the “Seven Factor” Test:
- Both parties understand that the intern is not entitled to compensation.
- The internship provides training that would be given in an educational environment.
- The intern’s program completion entitles him or her to academic credit.
- The internship corresponds with the academic calendar.
- The internship’s duration is limited to the period when the internship educates the intern.
- The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.
- The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s end.
Documentation
The student intern and the business should sign agreements incorporating the above language. Providing an offer letter with the seven test understanding will provide no dispute, and companies will secure potential liability.
Learn more about HR Compliance issues.
Sources:
BLS.gov (3/14/2023) Internship Compensation Compliance
SHRM.org (11/2022). Internship Programs Help Small Companies Find Employees. https://www.shrm.org/hr-today/news/hr-magazine/winter2022/pages/how-internship-programs-help-small-companies-attract-future-workers-.aspx