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Summer Interns – Employees? Independent Contractors? Unpaid?

Hiring an intern for the summer or any time of year is often a win-win situation for both the intern and the company. Interns get real-world experience, and employers get extra helpers for projects and the opportunity to evaluate potential future employees. Most internships qualify participants as employees that are entitled to compensation under the Fair Labor Standards Act (FLSA). However, there are exceptions. Below are general guidelines that determine how an employer needs to classify the intern:

Unpaid

An internship may be unpaid if the work does not benefit the company economically or doesn’t displace work performed by employees. An employer cannot arbitrarily label a position as an internship to avoid paying minimum wage or overtime. However, if the position is solely for training the worker, then non-payment is valid. The training program must meet all six of the following criteria:

  • Training is for the benefit of the trainee.
  • Training is similar to what a person would receive at an academic or vocational school.
  • Trainees don’t displace regular employees.
  • Employer doesn’t receive any immediate benefit from the trainee, and may even be disadvantaged as a result of providing training.
  • Trainees are not entitled to a job after training ends.
  • Trainees and employer agree that no wages will be paid during training.

Independent Contractor

An intern may classify as an independent contractor if the following criteria apply to the job:

  • The work performed is not an integral part of the employer’s business.
  • The worker directs scheduling of time.
  • The worker invests in equipment or marketing to perform work for more than one company.
  • The worker isn’t economically dependent on the employer; he or she is conducting his or her own business.

Employees

The qualifiers for employees are most typical for a work-to-learn arrangement:

  • The nature of the worker’s task is essential to the business.
  • Business aspects of the worker’s job are controlled by the payer. (Factors include scheduling, how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  • The company directs how the worker performs his or her job.
  • Permanence or indefinite job term are due to industry characteristics. For example, work may be seasonal, but if that is a characteristic of the industry, then the work is still considered permanent.

Workers don’t have to meet every one of the requirements for independent contractors and employees. What’s important is to consider the degree or extent that the employer directs/controls what the worker will do for the relationship.

Course Credit

Internships may or may not qualify for course credit. Various schools and employers have different rules regarding credit. Course credit is something that the intern must navigate, starting with the school requirements.

If you have questions about classifying interns or any type of working relationship, please talk with a Salmon Sims Thomas tax advisor.