What Your Small Business Needs to Know about Hiring an Intern

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 criteria that your small business must meet before you can start rounding up college students for unpaid internships. Following is the Primary Beneficiary Test:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee—and vice versa.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

Your business must meet all seven of these federal 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 InternsPaid Interns
Pro: You have the opportunity to provide training to young professionals.Pro: The intern only requires the training necessary for his or her assignments.
Pro: You don’t have to pay the intern.Pro: You can assign the intern a range of independent tasks.
Con: At least one employee must work with the intern during most assignments.Con: Payroll and other expenses increase.
Con: The intern’s environment must focus on education rather than production.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.

Are Interns Eligible for Health Insurance Benefits?

Interns are people too and deserve to be respected as such in the workplace. Some industries may face more competition for talent than others. This may mean re-evaluating your company’s benefits package to include providing interns group health insurance for the summer term.

Summer and Seasonal Internships

What qualifies someone as a “summer intern”? A summer intern is a temporary employee that can provide their skills in exchange for pay, experience, or school credit depending on your business and the intern. The duration of their employment typically ranges from 90-120 days. Depending on your business model, some summer internships can evolve into a part-time internship when school starts back up in the fall. Based on recent labor laws, most internships nowadays are paid positions.

While their employment may be for a short period of time, interns may still be eligible for benefits depending on the terms of your group health insurance. A large percentage of interns are most likely still covered by their parent’s insurance, but others may be over age 26 or have extenuating circumstances where an employer-sponsored health plan could be a very attractive benefit to them.

Group Health Insurance for Interns

So, does your business have to offer health insurance enrollment to an intern? The answer completely depends on your business’ specific health plan eligibility terms and parameters.

First, know that the Department of Labor does not actually differentiate between paid interns and employees, so they do not have separate employment rules. In most cases, employer-sponsored health insurance benefit eligibility is triggered by the number of full-time employees at the business, the number of hours worked by the employee, and/or the length of the worker’s employment.

Temporary or seasonal workers typically do not qualify for healthcare benefits under the majority of plans. It is common for benefits to usually begin around six months of employment, which exceeds the length of most summer internships. If the intern continues working for the company for longer than six months in a 12-month period, they may no longer be considered seasonal/temporary.  Some health plans may also set a minimum number of hours per week that have to be worked in order to be eligible for enrollment, also causing some interns to be ineligible.

This information is a high-level overview, so it is recommended to consult with your insurance broker to see if there is specific wording that would make temporary or seasonal workers eligible under your plan and to confirm your plan’s exact rules with your carrier or benefits broker. If your summer interns are in fact eligible, you should provide them with access to this benefit per your usual waiting periods.

Other Employment Benefits for Interns

Regardless of your plan’s eligibility, offering benefits to your summer interns can enhance your employment brand and reputation amongst college placement offices and the intern community. A successful internship should truly be a mutually beneficial experience.

At the employer’s discretion, other benefits that can be offered to an intern may include paid holidays or time off, retirement plan inclusion, tuition reimbursement, mentorships, invitations to company social events, and other on-premise benefits and activities that are available to your whole team.

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.

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