A monthly peek behind the curtain of my internship program
A few months ago, an email landed in my inbox from a local college student seeking an internship opportunity. “Internship?” I thought. “Is my business even ready for an internship? Can I take something like that on?” When I finally responded, we set a coffee date, where I was fully prepared to let her down gently, or kick the can down the road when it came to actually hiring.
Instead, I met with a confident, incredibly smart, and ambitious woman who was more than capable and prepared to help me with my business. The more I talked to her, the more I realized she might be exactly what I needed for my business to get to the next level, and I found myself unexpectedly thinking about how I would make this work. I tried to define what exactly made me think that my business wasn’t “ready”- after all, I was overworked and growing even busier, and admin tasks were stealing valuable time from me each week. So, I decided to give it a try.
And I can’t tell you how thankful I am that I did. Albeit, I hit the lottery when it comes to interns: she is getting a degree from my own alma mater in entrepreneurial studies and plans to launch her own business upon graduation. It was hugely important to me to hire someone who will actually benefit from the work provided, so I’d like to think that working behind the scenes with my firm has helped prep her from her own launch.
Why do I share this? Since bringing her on, I’ve had more conversations than I can count with other business owners who also wish they could bring on an intern, but find themselves making up hollow excuses (just like I did!) about why they couldn’t. If you’re feeling stretched thin and are thinking about bringing on some help, take it from me: consider bringing on an intern. Done right, this will not only give you hours back in your life, but also gives you a chance to invest in the next wave of entrepreneurs.
With that in mind, this spring I’ll be sharing a peek behind the curtain of my hiring process- what’s gone well, and what I can improve, in hopes that it helps equip you for hiring in your own business. Today, I’m starting with (you guessed it): how to hire an intern, legally.
It may sound a little extreme, but here is the unavoidable truth: bringing anyone on board in your business has the potential of opening your business up to potential liability. Done correctly, an intern can provide crucial support for your business…done incorrectly, it can be nothing short of an invitation of liability for your business.You must consider three areas to lay a legal foundation for your inernship program: 1. Whether they are paid or unpaid (legally) 2. Whether you are paying them correctly and classifying them correctly, and 3. Last but most importantly, whether you are appropriately covered by your contract.
- Will you intern be paid or unpaid? If the latter, are you doing so legally?
The most common (and dangerous) mistake I see business owners make is the classification of the intern: whether or not they’re paid or unpaid. According to the Fair Labor Standards Act (FLSA), any potential employer of an intern must comply with federal employment laws (minimum wage, overtime pay, for starters), and ensure that interns aren’t actually employees.
So what distinguishes an employee from an intern? And when can you get away with hiring an unpaid intern?
Your Unpaid Intern Isn’t Legal Unless…
You can say yes to ALL 6 of the following:
- No compensation. You make it explicitly, undoubtedly clear to the intern that they will not be paid. All parties understand that the intern or trainee is not entitled to wages for any time spent in the internship or training program.
- Academic or vocational environment. You will have to make sure that the work you provide your intern is similar to the training they would receive in an academic or vocational environment. Although your internship will include actual employer operations, take the time to educate the student along the way. This factor obviously leaves quite the gray area of interpretation, but you will be most likely to comply if you enter into a classroom component- such as an externship (see below).
- The internship or training is for the benefit of the intern or trainee. You need to equip the intern with skills that “can be used in multiple employment settings,” as opposed to skills that can only be used for one employer. If your burden of planning and administering the internship to the student is greater than any incidental benefit you receive from the interns or trainees, this requirement is likely to be satisfied.
- Regular employees are not displaced by interns or trainees. The intern does not replace any employee. Instead, the interns work under the close supervision of existing staff or employees. A common example is when an intern shadows a regular employee without doing any work for the employer. If this occurs, this requirement is more likely to be satisfied.
- Employer derives no immediate advantage from interns or trainees. Instead, the internship may actually impede the employer’s operations.
- No job entitlement. The intern knows they aren’t entitled to a job after the internship ends.
In any scenario in which you are hiring an unpaid intern, expressly detail each of these 6 factors in an unpaid intern agreement. Make sure you take the time to go over each factor with the intern so that you are both on the same page, and no one feels surprised later on.
If you don’t have the capital to pay an intern, the most common way to still offer up a position to a student is to create an externship program. At both my undergrad and law school, we had an externship option, meaning for a certain number of weekly work hours, we could work for no pay and be compensated with credit hours instead. This was an option I took advantage of nearly every semester of school, and externed everywhere from small-town law firms, to publicly traded corporations, to clerking for federal judges.
While of course learning how to write agreements for federal cases and contracts and agreements for corporations was hugely beneficial to me, I’d like to think the same was true for my employers: unpaid work, minimal paperwork and an enthusiastic worker who showed up thankful every day to be there seems like a good deal.
When it comes to employment law matters in your business, the federal government keeps a watchful eye on compliance. If you can’t comply with all 6 factors, then you need to pay your intern (and comply with federal employment laws, such as minimum wage and overtime). Unless you are prepared to spend the forethought and effort to diligently comply with these 6 factors, you’re probably better off just paying the intern. Better yet, set up an externship program with their university, and ensure that you are protected the entire time you hire them.
2. Are you paying your intern correctly, and classifying them correctly?
Another area that I see people run into trouble with their internship programs is payment. This should go without saying, but ensure that you’re at least paying them minimum wage.
Classification of your intern as either is a much more complicated question, which I will be writing more about later. However, it’s important to note that any time you are hiring in your business, you must stay cognizant of the distinction between employees and contractors. Misclassifying your hire can land you in hot water with the DOL, and make you liable for things like back taxes, overtime pay, and pentalties.
Although there are several factors, the major difference between an independent contractor and an employee is the type and degree of control that the employer has over the worker. Employers determine when, what, where, and how the employee will perform the assignment. On the other hand, an independent contractor is just given an assignment, with little to no control over when or how the task gets done. Normally, the independent contractor will have an end date to their services. While the employer has the right to control the outcome or product, they generally don’t have a say about how the contractor goes about completing the assignment.
6 Factors Distinguish Independent Contractors from Employees
The difference between independent contractors and employees comes down to the degree of “control” you have over the hire. “Control” is defined by certain factors:
1. How integral is the hire to your business? Ie, can you still provide your business’ services without your intern’s help?
2. Whether the worker’s managerial skills affect his or her opportunity for profit or loss. I.e., do you set their hours? Can they pursue other jobs?
3. Permanency of the relationship. Do you have a defined end date?
4. Nature and degree of control over their work. This is arguably the most important factor.
5. The relative investments in facilities and equipment by the worker and the employer. Have you provided the tools for the hire to do their job, such as giving them a computer to use? If so, they’re probably an employee.
6. The worker’s skills and initiative. Is the employee still free to pursue work from other employers?
These factors are confusing and dense, so I’ve created a handy cheat sheet for you here.
The issue with more formal internship programs is that many times, the internship program would fail many of the tests above, making it look more like an employee relationship. It’s crucial to note: I very intentionally decided to allow my intern to work from her college campus, in her own hours, using her own equipment, and with the most minimal oversight that I can provide. Honestly, my delegation of her work looks exactly like the word I delegate to my VA. Additionally, she works for other employers concurrently with this internship.
If you are unsure about your own situation, the safest thing to do is to classify your intern as a part-time employee (i.e., limiting interns to working less than 30 hours per week). Generally speaking, unless required by specific state laws, part-time employees generally are offered limited or no company benefits (ie health benefits, vacation and sick time, paid holidays and unemployment compensation).
3. I’ve saved the most important for last: you must have a sufficient contract in place.
I can’t stress this enough: you must have a strong contract in place. Your internship contract needs to be drafted with the utmost care; with the most colloquial, plain terms, that adequately covers everything both parties needs.
Arguably the most important provision in that contract is going to be your confidentiality provision. Throughout the internship, you will be inherently providing your intern with confidential information. By taking that into account at the outset of the internship, you will easily be able to mitigate any potential liability. Confidential information can cover everything from truly confidential information, such as client information, or confidential information in terms of the proprietary inner workings of your business- the way that you run your business. Your intern may not know what is expected to be confidential at the outset, and there’s nothing wrong with that! They’re students, and it’s ok for this to be a business learning experience. But that does mean it’s entirely up to you to educate them in a way that protects your business. Of course, the best way to do this is to spell it out in black and white writing, in the contract itself. This is another reason why that agreement, written out with the right information and the right way, is so crucial.
The Agreement itself will need to cover other areas specifically, including:
- The payment structure. What are you paying them; how often; how (ie, method?)
- The timeline of the internship
- A provision spelling out your relationship
- Termination and cancellation
- General description of their tasks
Please note that this isn’t intended to be an exhaustive list; just a checklist to get your mindset right!
Of course, when I hired my intern, I drafted up a contract to protect us. I’ve converted that exact same agreement into the template that you can find in my Shop, as well as an Externship Agreement.
Let me know- was this helpful for you? Once you get a handle on the legal aspects of hiring an intern, you’ll have the foundation you need to begin hiring successfully. Stay on the lookout for a post later this month from my intern herself, sharing her perspective on her internship- the good, the bad, and what has been helpful- as well as the entire process I have in place for hiring.