Employing Interns for Small Businesses – Part I: Legal Considerations
Gone are the days when internship programs were just about providing coffee runs. They're now an invaluable asset for small business owners seeking fresh perspectives, increased productivity, and a talent pipeline. As tough as it can be to retain talent in this labor force, interns are 32% more likely to stay with a company after finishing an internship program.
Legal liabilities exist when employing interns with no structured internship program. It is important to consult an HR consultant like CPR before employing interns. In this blog post, we'll delve into the legal intricacies of employing interns before developing an internship program that is compliant - even if hiring only one intern. We’ll talk about the components of a structured internship program in part II of this blog post.
The Business Case
Small businesses and interns alike stand to gain numerous advantages from a well-designed internship program:
Small Businesses
Creates a pipeline of skilled talent for future recruitment needs by gaining access to quality talent before competitors.
Enhances brand recognition among student peers, positioning your business as an attractive employer of choice.
Provides cost-effective labor, contributing to your business’ financial sustainability.
Fosters innovation through diverse perspectives brought in by students.
Interns
Offers hands-on experience to complement academic studies.
Facilitates the development of essential workplace skills and behaviors in a supportive environment.
Provides access to training not available in academic settings, often with compensation.
Expands professional networks, laying the groundwork for future career opportunities.
Provides possible higher starting earning potential than peers with no internship experience.
Legal Compliance
Navigating the legal landscape of intern employment requires careful attention to labor laws and regulations, as they change frequently. Interns have been traditionally taken advantage of so the legalities surrounding employing interns is complex. Internship programs that are well-planned and structured tend to maintain compliance. Familiarize yourself with labor laws and regulations regarding internships in the location you plan to hire interns. There are several recommendations CPR provides to avoid legal repercussions.
Pay: Always offer interns competitive pay!
As of 2023, 60.8% of internships are paid in the U.S. and the national average hourly rate for paid interns is $20.76. Keep in mind that students typically can’t afford to go an entire summer without pay. Although you are not required to pay an intern by law, the Fair Labor Standards Act (FLSA) is very specific regarding for-profit businesses classifying an intern as an employee; non-profit businesses can employ unpaid interns and classify them as volunteers as long as there is no expectation of being paid. We will focus on the rules regarding for-profit businesses.
Pay interns at least minimum wage, according to the FLSA or any local or state laws that supersede the FLSA, to ensure the proper treatment of interns from a wage and hour law perspective. If you are serious about fostering a diverse workforce, paying interns fosters a diverse workforce that ensures a broad spectrum of socioeconomic backgrounds can apply.
If you are serious about fostering a diverse workforce, paying interns fosters a diverse workforce that ensures a broad spectrum of socioeconomic backgrounds can apply.
Exemption Status: Classify interns as non-exempt (hourly).
Interns should not be classified as salary and exempt from overtime to avoid paying overtime and should be classified as non-exempt hourly employees. One requirement for classifying an employee exempt from overtime is that they “exercise discretion and independent judgment” as part of their normal job duties. Interns typically do not have this latitude during their employment. The risks are steep - misclassification of an intern can result in backpay, civil fines and penalties, and other damages depending on the applicable jurisdiction.
Not Independent Contractors: Classify and treat interns as employees and not independent contractors.
Independent contractors have independence in how they perform the work, when they perform the work, and use their own tools and resources to perform the work. Interns do not control these aspects of their intern job. Again, misclassification of an intern can result in backpay, civil fines and penalties, and other damages depending on the applicable jurisdiction.
Workers’ Compensation: Incorporate intern coverage in your workers’ compensation insurance program.
In case interns are hurt or fall ill on the job, incorporate intern workers’ compensation coverage to protect interns in case of workplace injuries in states where this is required. At the time of this writing, every U.S. state requires workers compensation for workers except Texas. Workers’ compensation requirements vary for unpaid interns so be sure to check those requirements.
Health Insurance: The requirement for offering health insurance coverage to interns depends on how many hours and how long the intern works.
You must offer health insurance coverage for interns averaging over 30 hours per week over the course of 120 days (does not have to be cumulative but within the same calendar year). Contrarily, an intern working as a “seasonal employee” (example: summer intern), customarily working 180 days or less at approximately the same time each year are excluded from being offered health insurance coverage. Ensure to state in the intern’s offer letter and in your company policy if they are being offered health insurance or not.
Paid Leave: Granting paid time off for holidays to interns is at your discretion.
It is best practice to grant interns time off for holidays your business is closed during their internship period. Who will be monitoring the interns’ work while everyone else off from work? There is no federal law that requires you to grant interns vacation leave but there may be specific local or state laws regarding granting leave. Again, it is best practice to state in the intern’s offer letter and in your company policy if they are being offered paid leave or not.
Ensure to state in the intern’s offer letter and in your company policy if they are being offered health insurance or paid leave or not.
401(K): Typically, employees must be 21 years of age and older and employed at least one year to contribute to a 401K plan.
Most students are not 21 years of age yet, but interns can be of any age group. Either way, if any group of employees is left out of eligibility for 401K, it should be spelled out in the summary plan description.
Fringe Benefits: You can consider providing stipends, transportation or hotel expenses, free meals, rental car, or other perks to attract interns.
Although these benefits are not required by law, if you plan to offer these benefits, just ensure you are offering these benefits consistently to each intern. Be careful with providing these benefits as they can become very expensive, especially as the number of interns in your internship program grows.
Discrimination: Interns vary in age and can be students in high school or college or could be professionals with experience who are considering a career change or recently laid off.
Although the average age of interns is 17, be careful not to discriminate against older interns for employment as they may possibly qualify for intern positions over younger students.
Conclusion
The legal liabilities discussed in this blog do not represent an exhaustive list. Small businesses can establish compliant internship programs that provide valuable experiences for interns while minimizing legal risks. Everyone in your small business (mentors, employees, and managers) should all be aligned in their role in the internship, so your business does not inadvertently violate laws and regulations. Stay tuned for Part II, where we'll delve into the components of a structured internship program for small business success.
Contact CPR today to help you navigate the legal landscape of internship programs!
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.
