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What Your Small Business Needs to Know about Hiring an Intern

August 26, 2015 | posted by Abacus Payroll
Abacus Payroll Paying Interns

As a small business owner, labor costs likely account for one of the largest portions of your profit, so finding ways to get around that investment always sounds appealing. Does hiring an unpaid intern seem like a great way to do just that? The problem is, without meeting the qualifications the Fair Labor Standards Act (FLSA) set forth, hiring an intern may cost just as much as hiring someone for around minimum wage.
To many business owners, unpaid internships sound ideal. What could be better than a fresh, no-cost worker? After all, interns are free, right? Unfortunately, this misunderstanding of internships is both incorrect and dangerous.
Before offering a student an unpaid internship in either New Jersey or Pennsylvania, you must understand the true function of an internship. The U.S. Department of Labor has specific guidelines in place to ensure that businesses all sizes properly manage both paid and unpaid internships.

Hiring an Intern in New Jersey or Pennsylvania: To Pay or Not to Pay

For some companies, hiring an intern provides an opportunity to introduce students to a company they might not have otherwise been interested in. After a student acts as an intern, he or she may be much more willing to apply to fill positions he or she already understands.
However, any further benefit to the company may qualify the intern for payment, which can make determining compensation both daunting and confusing. The U.S. Department of Labor has six criteria that your small business must meet before you can start rounding up college students for unpaid internships:

  1. The internship should be set up like educational training.
  2. The internship should primarily benefit the intern.
  3. The intern should not take the place of other employees and must work under supervision.
  4. The small business or employer should not gain any advantage from the intern’s work, and in some cases, the intern might impede normal operation.
  5. The employer should ensure that the intern knows he or she is not guaranteed a job afterward.
  6. The employer and the intern understand that the employer will not pay the intern.

Your New Jersey or Pennsylvania business must meet all six of these qualifications to hire an intern without pay.
Simply put, an unpaid intern must be a “learner/trainee.” In order to maintain that classification, you must structure the internship to provide one-on-one, hands-on learning experiences. In other words, the intern always receives compensation—either in knowledge gained or in wages earned.
If your vision for your internship program is more geared toward coffee delivery and stapling, plan to pay.

Hiring a Paid Intern

If you decide to pay your interns, your interns will legally be employees under the FLSA. After all, the most basic legal definition of employee is one who is “employed by an employer.” This means that, although the assignment is temporary, you cannot classify interns as independent contractors. Therefore, you must legally view and treat them as traditional employees. As such, you are required to pay payroll taxes and interact with interns ethically without discrimination. Their employee status also entitles paid interns to overtime pay in accordance with the FLSA and, in most cases, workers’ compensation benefits.
Like most states, both New Jersey and Pennsylvania require employers to offer no-fault compensation for injuries that occur on the job. This means that employers will not look into who was responsible for an injury before providing compensation. In exchange, the injured employee—or intern—agrees to waive his or her right to sue the company.

Hiring an Intern: Pros and Cons

Now that we are all more familiar with the legal implications of hiring both paid and unpaid interns, let’s review the strengths and weaknesses of each option.

Unpaid Interns

Paid Interns

  • Pro: You have the opportunity to provide training to young professionals.
  • Pro: You don’t have to pay the intern.

  • Con: At least one employee must work with the intern during most assignments.
  • Con: The intern’s environment must focus on education rather than production.
  • Pro: The intern only requires the training necessary for his or her assignments.
  • Pro: You can assign the intern a range of independent tasks.

  • Con: Payroll and other expenses increase.
  • Con: The intern will temporarily increase liability.

Regardless of how you structure your internship program, make sure it serves its original purpose legally, for your small business, and for the intern. Remember that there is no such thing as a free lunch.
Hiring an intern can be a beneficial experience for your staff, the student, and your company relations with local colleges and universities. If you have questions regarding how to add paid interns to your small business payroll, call Abacus Payroll Inc. today at (856)667-6225 or contact us online.

About the Author: Abacus Payroll

Abacus Payroll, Inc. is a leading provider of payroll solutions for businesses of all sizes. Whether yours is a family-owned small business or a national corporation, we provide payroll, tax and other financial services on time and at an affordable price. Unlike other payroll providers, Abacus Payroll will assign your very own payroll specialist who will understand your payroll needs inside and out. So no more speaking to a different person each time, no more sitting on hold for hours and most importantly no more missed deadlines! Contact us today to see how we can help your business. You can count on us.