How to Avoid the $6 Million Intern

Posted by Chris Kelley on Jun 15, 2017 5:12:00 PM

Ah…it’s summer time.  Time for beaches, brats and of course, the ubiquitous intern. Organizations across the U.S. bring on students during summer break in a variety of capacities. There’s no doubt that an internship opportunity can be extremely valuable for the students. Even if the interns are just learning about how a business operates or building workforce skills that will help them transition from school to work at some point down the road.

We get queInterns-Pay-and-Practices-Data.pngstions every year though from organizations wondering whether or not the company needs to pay wages to their interns.  Many people have always just assumed that the answer is ‘no’.  Their rationale is that interns are here to get hands-on experience and that should be payment enough. Or another common folktale is that interns in our industry aren’t paid because that’s the standard market practice.

Unfortunately, those are uninformed approaches.  Here are some recent examples of firms who learned the hard way:

Granted, each of the settlement amounts are for class action suits brought by thousands of individuals that worked over the course of many years.  Still, the cumulative impact and the negative headlines can add up to some big payouts.

Criteria for Unpaid Internships

It certainly is possible for an organization to utilize unpaid interns. The criteria can be a bit tricky to understand and it’s always best to seek legal counsel for guidance.

The U.S. Department of Labor (DOL) provides general guidance on when “for-profit” employers must pay interns in Fact Sheet #71. Interns are most often viewed as employees and need to be paid unless the employer can pass all six criteria in the following test:

  1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training that would be given in an educational environment;
  2. The internship is for the benefit of the intern;
  3. The intern does not displace a regular employee, but works under close observation of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern and, on occasion, the employer’s operations may actually be impeded; 
  5. The intern is not necessarily entitled to a job at the completion of the internship; and 
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

Boiling all six of those criteria down to a simplified interpretation, you really have to think about who is benefiting from relationship with the Intern.  If the company is deriving benefit from the work the Intern is completing, they more than likely need to be paid.  On the other hand, the more it appears the intern focuses solely on learning about the organization or industry in a training program (e.g. rotating through different departments during the program), the stronger the case that the intern can be unpaid.

The DOL has identified certain red flags that support disqualification from being an unpaid intern.

  • Productive Operations – is the work done by the intern directly engaged with the operations of the company?
  • In Place of Regular Employees – is the intern doing work that a regular employee would normally complete? Is the work supplementing or augmenting the regular workforce during a busy season?
  • Time Period – is the time-period for the internship open-ended?

Answering ‘yes’ to any of those questions most likely means you should being paying your interns.

Making the Case for Paid Interns

Many organizations include the use of interns as part of their overall human capital strategy. An effective internship program can:

  • Simplify your regular college recruiting efforts – you get the benefit of having more insights on new hire potential once the intern finishes their degree based on how well they performed during their internship. You also have a candidate who is already more comfortable with you and anxious to get back to work.
  • Fresh ideas and perspectives – interns are, by definition, in learning mode, but they can bring an outsider’s point of view to your processes and practices. Just by asking a naïve question, they can spark a new idea or two.
  • Lower cost talent – while it’s clear that few internships can be unpaid as we’ve described above, there is still a significant cost advantage to using interns as part of your human capital strategy. The competitive market rate for interns does vary somewhat by factors, such as
    • Degree discipline and level
    • Caliber of college/university
    • Industry
    • Geography

However, when we look at our recent New Graduate Hiring survey results and compare the overall national intern pay data for a B.A. / B.S. level student to the median base pay for the JobLink Level 4 (entry-level professional), the interns are being paid 23% lower.

You’ll need to consider many other factors when building an effective internship program for your organization, but having the right data and insights on pay for interns will help you along the way.  Contact us for more information on how we can help.

New Graduate Hiring Survey Results


Topics: College New Hire Salary Survey, Interns

Chris Kelley

Posted by Chris Kelley

Chris is a Director of Survey Product Management and is actively involved in the design and administration of a portfolio of salary surveys for Aon Hewitt. Chris previously spent over 20 years working in compensation / HR and he is an adjunct faculty member for WorldatWork where he has taught Market Pricing for over 10 years.