I’d like to hire interns to work at my startup. Do I have to pay them?
An internship program can be a win-win situation for your startup and for the interns. On one hand, it’s a natural way for you to provide mentorship to students trying to break into the startup community. On the other hand, interns can help make your startup successful, or at least sometimes relieve you from working late nights. Startups often ask whether they have to pay interns, and the answer depends on the circumstances. To determine whether an intern must be paid, you must apply what’s called the “primary beneficiary test.” Essentially, this test asks who—the startup or the intern—is primarily benefitting from the internship. To make this determination, seven factors are relevant, including whether:
- The intern and employer understand there is no expectation of compensation.
- The internship provides training which is similar to an educational environment.
- The internship is tied to the intern’s education by integrated coursework or academic credit.
- The internship corresponds to the academic calendar.
- The internship is limited to the period in which the internship provides beneficial learning.
- The intern’s work complements—rather than displaces—the work of paid employees.
- The intern understands he or she is not guaranteed employment at the end of the internship.
If you misclassify an employee as an intern, it could have negative effects on your startup. For example, it could invite lawsuits for overtime and backpay or result in you paying back taxes. We encourage startups to ensure that their internship programs are educational and to obtain written acknowledgment that interns will neither be paid nor guaranteed employment. If you have questions, or if it’s a close call, you should contact an attorney to obtain a professional opinion.
This post does not constitute legal advice and does not establish an attorney-client relationship.