How to Hire Interns: Paid, Unpaid, and the Legal Rules
How to hire interns without a wage claim: the FLSA primary beneficiary test, paid versus unpaid, the paperwork, and converting interns to hires.
The first intern I ever brought in was unpaid, and I got lucky. She was a marketing student, her school gave her credit, she wanted the portfolio piece, and nobody ever complained.
It was two years before I understood how close I had come to a wage claim I would have lost. The thing that would have sunk me was not the credit or the paperwork: by week three she was doing work I would otherwise have paid a contractor to do.
That is the whole problem with internships at a small business. Pay feels like a budget decision, but federal wage law treats it as a factual question about who benefits, and your budget does not enter into it. Get it wrong and the bill arrives later as back wages, liquidated damages and, at worst, a claim covering every intern from the past two or three years.
So this starts with the legal question and only then gets to the useful part: how to build an internship somebody would actually want, where to find candidates, what to pay, the paperwork, the supervision, and what to do at the end whether or not you are hiring the person. I build people and records tooling for businesses with no HR department at FirstHR. This is general information rather than legal advice, and internship law varies significantly by state.
- Sign the offer letter
- Sign the employee handbook
- Workplace Safety course
What Counts as an Internship Under Federal Law
Federal wage law contains no category called intern. There is a definition of employ, and everything else follows from it: under the Fair Labor Standards Act, to employ means to suffer or permit to work, which is deliberately broad and catches far more arrangements than the word employee normally suggests (29 U.S.C. 203).
The practical consequence catches small employers off guard. You cannot create an unpaid position by agreement. A signed waiver in which somebody agrees to work without wages is unenforceable against the FLSA, because the statutory floor is not a term the parties get to negotiate away (Brooklyn Savings Bank v. O’Neil).
Wage law applies the same logic well beyond waivers, which is why misclassification claims so often turn on facts rather than documents.
Two questions decide the outcome. Is the person doing work that benefits your business? And who is the primary beneficiary of the arrangement, them or you? Everything in the rest of this article about unpaid internships is an elaboration of the second question.
Paid or Unpaid: Settle This Before Anything Else
Pay the intern. For a for-profit business without an education partnership already in place, paid is the correct default and unpaid is an exception that has to be earned factor by factor, documented, and usually run through a school.
I give that advice bluntly because the asymmetry is brutal. A paid summer intern at fifteen dollars an hour for ten weeks at thirty hours a week costs roughly $4,500 plus employer payroll taxes.
An unpaid intern who is later found to have been an employee costs you the unpaid minimum wage for every hour worked, an equal amount again in liquidated damages, and the claimant’s attorney fees. The claim can reach back two years, or three for a willful violation.
| Arrangement | Wage obligation | Where it fits |
|---|---|---|
| Paid intern | Minimum wage and overtime, employee in every respect | The default for a for-profit business. Simple, defensible, and the only version that lets you assign real work |
| Unpaid intern | None, if the primary beneficiary test is satisfied | Narrow. Realistically requires a formal education program, academic credit or integrated coursework, and a school term |
| Volunteer | None, for public agencies and for genuine charitable service to non-profits | Not available to a for-profit business for its own commercial work, whatever the volunteer says they are willing to do |
| Independent contractor | None, but the classification test is separate and strict | Rarely appropriate for a student learning a job under your supervision and on your schedule |
The contractor route deserves one warning, because it is the workaround small employers reach for most. Paying a student on a 1099 to avoid payroll does not solve the problem. It swaps one classification test for another and usually fails the second one too.
The FLSA Primary Beneficiary Test and Its Seven Factors
The primary beneficiary test asks which party gets the greater benefit from the internship: the intern, through education and training, or the employer, through work performed. If the answer is the employer, the intern is an employee and is owed minimum wage and overtime.
The Department of Labor adopted this test in January 2018, replacing an older six-part standard under which every element had to be met. Fact Sheet #71 sets out seven factors drawn from federal appellate decisions and describes the test as flexible, with no single factor determinative (DOL Fact Sheet #71).
Read those factors as a whole rather than a scorecard. Courts weigh the economic reality of the relationship, so a program that technically ticks four of seven boxes while the intern spends the summer doing paid employees’ work will still lose.
What Actually Makes an Unpaid Internship Lawful
A lawful unpaid internship at a for-profit business almost always has the same shape: it is arranged through a school, it carries academic credit or satisfies a course requirement, it runs on the school term, and the intern produces work nobody was previously paid to produce.
The pattern to notice is that the defensible version costs a supervisor real time and delivers the business very little output. That is not an accident. It is the point of the test. If you find yourself hoping the intern will get through a backlog over the summer, you have already decided the pay question and just not admitted it.
If you want the unpaid version, build the paper trail while the internship is happening rather than after somebody asks. Keep a written agreement stating there is no wage and no job at the end, the school’s learning agreement, the faculty contact, the credit confirmation, and a short record of what was taught each week.
The agreement does not create an unpaid position, but it records what both sides understood about pay and a job at the end, which bears on the first and last factors. File everything with the rest of your personnel records.
The record below is where that analysis lives. Filling it in honestly is also the fastest way to find out that the answer is paid, which is the outcome it produces most of the time.
Non-Profits, Volunteers, and Public Agencies
Non-profits and public agencies have room that for-profit businesses do not, but it is narrower than most people assume. The exception is for volunteers, not for interns, and it turns on whether the service is genuinely donated for charitable or public purposes without any expectation of pay.
For public agencies the carve-out is statutory: an individual who volunteers to perform services for a state, a political subdivision, or an interstate governmental agency is not an employee. Two conditions apply: the person receives no compensation beyond expenses, reasonable benefits, or a nominal fee, and is not doing the same type of work they are otherwise employed to do for that agency (29 U.S.C. 203(e)(4)).
The implementing regulation states the test in plain terms. A volunteer is somebody who performs hours of service for a public agency for civic, charitable or humanitarian reasons, without promise, expectation or receipt of compensation, and whose services are offered freely and without pressure or coercion (29 CFR 553.101).
For private non-profits, the position comes from Department of Labor guidance rather than the text of the statute, except for people who volunteer for humanitarian purposes at non-profit food banks, who have their own statutory exemption.
Wage and Hour Division Fact Sheet #14A says a volunteer generally is not an employee when the person volunteers freely for public service, religious, or humanitarian objectives, without contemplation or receipt of compensation, and such volunteers typically serve part time (DOL Fact Sheet #14A).
Three limits matter for small non-profits. First, an existing paid employee cannot volunteer to do more of their own job for free. Second, a person doing commercial work in a non-profit’s revenue-generating operation, a gift shop being the example the agency itself uses, is likely an employee.
The third limit is that the label decides nothing. Fact Sheet #71 calls an unpaid internship at a public agency or charitable non-profit generally permissible where the intern volunteers without expectation of compensation, so the question is still whether the intern is a genuine volunteer, whatever the role is called (DOL Fact Sheet #71).
States That Are Stricter Than Federal Law
Passing the federal test is not the end of the analysis. Several states apply their own internship standards under state wage law, and where the state rule is more protective, the state rule governs (29 U.S.C. 218). A structure that survives Fact Sheet #71 can still produce a state wage claim.
New York is the clearest example. The New York State Department of Labor applies eleven criteria to unpaid internships at for-profit businesses, and every one must be met: six it takes from the Department of Labor’s older six-part test and five of its own (NYS DOL, wage requirements for interns).
New York also requires written notice, before the internship starts, that the intern will receive no wages and is not considered an employee for minimum wage purposes. The intern must receive no employee benefits, the screening must differ from ordinary hiring and use only criteria relevant to admission to an educational program, and any advertising must describe education or training rather than employment.
California is the other state small employers ask about most, and California wage orders, meal and rest break rules and its own minimum wage all apply the moment the person is an employee.
California’s Labor Commissioner has applied the older six-criteria federal standard, the one the Department of Labor replaced in 2018, to interns. Its Division of Labor Standards Enforcement (DLSE) did so in an April 2010 opinion letter, and its earlier eleven-factor test had also required any clinical training to be part of an educational curriculum (DLSE opinion letter, April 2010).
Oregon states the underlying principle more bluntly than most. Its Bureau of Labor and Industries tells employers that labeling a placement an unpaid internship has no bearing on whether the work is subject to wage and hour law. It adds that where the totality of the factors does not weigh in favor of the intern as primary beneficiary, the obligations of employment apply (Oregon BOLI, interns and trainees).
Two practical rules follow. Verify the standard for the state where the intern physically works, not where your company is registered, which is the same trap that catches employers hiring across state lines. And if the intern is remote and sits in a different state from you, apply that state’s rule, along with its payroll tax requirements.
Designing an Internship Worth Somebody’s Summer
The design question is simple to state and hard to honor: would you take this internship? If the honest answer is that you would spend ten weeks doing admin nobody else wanted, you will get a disengaged student, a frustrated supervisor, and a conclusion that interns are not worth the trouble.
Scope the project one size smaller than feels right. A student with no professional experience will take twice as long as your estimate on anything involving your systems, your customers or your internal vocabulary, and a project that finishes in week eight with time for a second one beats an ambitious project abandoned in week eleven.
All of that fits on one page, and the page is worth writing down because it is what the supervisor agrees to rather than what you hope they will do.
Everything above is ordinary employee onboarding compressed into a shorter runway, so borrow the structure you already have.
Where to Find Interns and What to Pay Them
Schools are the highest-yield source by a wide margin, because a career center does part of your screening, gives you a repeatable channel every term, and can tell you what credit-bearing placements require. Open job boards are the least efficient, because an internship posting on a general board attracts volume rather than fit.
Four channels are worth the effort for a small employer. University and community college career centers, where a single relationship with one coordinator produces candidates year after year. Individual faculty in the relevant department, who know which students are actually good. Student organizations and clubs tied to the discipline. And your own team, since employee referrals reach students your staff already vouch for.
On pay, start from the legal floor and work upward. The federal minimum wage under the FLSA is $7.25 an hour, unchanged since July 2009, and many states and cities set a higher rate, with the higher rate applying (DOL, history of federal minimum wage rates).
Federal law does allow a lower youth rate. An employer may pay $4.25 an hour to an employee under 20 during the first 90 consecutive calendar days of employment, a window that covers a whole summer placement. Two limits apply: the employer may not displace other workers to do it, and state or local law can rule it out (29 U.S.C. 206(g)).
Above the floor, the defensible reference point is what entry-level work in the same occupation and area actually pays, discounted for supervision time and lower productivity.
Two further points on pay. Whatever rate you set, apply it consistently across interns doing comparable work, because inconsistent intern pay is a small pay equity problem that becomes a large one when those interns become employees. And do not reach for a flat stipend as a way around hourly wages: a payment that functions as compensation for work is wages.
Paying a Stipend Instead of an Hourly Rate
A stipend does not change the wage obligation, and on an unpaid placement it cuts against the first factor of the primary beneficiary test. If the intern is an employee, the money has to work out to at least the applicable minimum wage for every hour worked, plus overtime past forty in a workweek, and a flat monthly sum hides whether it does.
Do the division before you agree on a figure. A $2,000 stipend for a placement of 10 weeks at 30 hours a week is 300 hours, which comes to $6.67 an hour and sits under the standard federal minimum of $7.25 before any state or city minimum is considered.
The rest is bookkeeping and none of it is optional. A stipend paid to an employee for services is wages: it runs through payroll, it carries withholding and employer payroll taxes, and it belongs on a Form W-2 rather than a 1099. The treatment is set out in stipend taxability.
The Paperwork an Intern Needs, Which Is All of It
A paid intern is an employee, so the onboarding paperwork is identical to any other hire. There is no reduced tier for students, summer placements, or people working ten weeks. Skipping steps because the engagement is short is how small employers accumulate penalties that outlast the internship by years.
| Item | Deadline | Notes for interns specifically |
|---|---|---|
| Form I-9 | Section 1 by the first day of work, employer review within three business days of the start date | Students often present a document set you have not seen before. Never specify which documents they must bring |
| Form W-4 and state equivalent | Before the first payroll run | Many interns are first-time filers. Point them at the IRS estimator rather than advising them yourself |
| State new hire report | Per state: 20 days from hire in most, as few as 7 in some | Required for every new employee regardless of hours or duration |
| Workers compensation | Before the first day of work | Add intern wages to the payroll figures your carrier uses. Confirm coverage explicitly if any intern is unpaid |
| Offer letter | Before the start date | State the rate, the hours, the end date, and that employment is at will where your state allows it |
| Handbook acknowledgement | First week | Interns get the same policies on conduct, safety, confidentiality and equipment as anyone else |
| Youth employment permit | Before the start date if the intern is under 18 | Required in most states for at least some minors, usually issued through the school |
Two items carry the most risk. The Form I-9 has to be completed on the standard timeline even for a ten-week placement. The employer review deadline is three business days from the first day of work for pay, not from the offer (USCIS, completing Section 2). Interns arriving on student visas add a work authorization question you should resolve before the offer, not after.
The second is workers compensation. Paid interns are covered like any employee in almost every state, and their wages belong in the payroll figures your premium is calculated on. Unpaid interns are the gap: many state statutes define a covered employee around wages, which can leave the intern outside the policy entirely. Call your carrier, describe the arrangement plainly, and get the answer in writing.
The rest is your normal sequence. Federal and state withholding forms, the report to your state new hire directory inside its deadline, payroll setup and unemployment tax registration.
What Benefits a Paid Intern Is Entitled To
A paid intern is an employee, so anything your plan documents define by employee status can reach them. Most employee benefits carry an eligibility rule, though, and a ten-week placement rarely clears a waiting period or an hours threshold, so the honest answer is a short list rather than nothing at all.
Statutory coverage does not wait for a threshold. Workers compensation and unemployment insurance generally attach from the first day. One narrow federal exception covers students: work that is an integral part of a nonprofit or public school’s full-time, for-credit program combining classes with work experience, certified by the school, falls outside federal unemployment tax (26 U.S.C. 3306(c)(10)(C)).
Several state paid sick leave laws also start on day one. California requires accrual of one hour for every thirty hours worked from the start of employment, for anyone who works thirty or more days within a year, with no employer size threshold at all (California Labor Commissioner, paid sick leave).
Accrual is not the same as access, though. California lets an employer hold back any use of that leave until the ninetieth day of employment, which a ten-week summer placement never reaches, so the balance can sit unused unless the employer advances it or the internship runs longer.
The balance does not simply disappear when the summer ends. California reinstates accrued sick leave that was neither used nor paid out when the same employer rehires the worker within a year, so an intern who returns as a full-time hire inside that window brings the hours back (California Labor Code 246).
Health coverage is where small employers usually land on no, and the reason is eligibility rather than intent. A group plan defines an eligible employee by a minimum weekly hours figure and a waiting period, which is a narrower question than whether you have to offer coverage at all. Decide deliberately whether an intern sits inside that definition.
Retirement is the one to watch when a student keeps coming back. Under the Internal Revenue Code’s rules for long-term part-time employees, a 401(k) may require somebody to be twenty-one, but cannot require more than a year of service, or more than two consecutive twelve-month periods with at least five hundred hours in each, before they may join (26 U.S.C. 401(k)).
A single summer falls well short of that service test. A student who is at least twenty-one and also works part time through the school year, two years running, can clear it.
Supervision, Project Scoping, and the Weekly Rhythm
Whether an internship works depends most on whether the supervisor had capacity, and that is decided before the intern arrives. A manager who agreed in March while July looked empty is the most common cause of a wasted summer.
Budget four to six hours a week of real supervisor time for a full-time intern. That is not all meetings. It is roughly one fixed weekly session, several short unblocking conversations, and the time it takes to review work properly rather than glancing at it. If nobody has that, run the internship next term instead.
Protect the fixed weekly slot above everything else. Students who have never held a professional job do not know that interrupting you is allowed, and they will sit stuck for three days rather than ask. A slot that holds is where problems surface early, and moving it twice teaches the intern it is optional.
Give feedback in specifics and give it early. A midpoint review at week five or six, while there is still time for anything to change, is worth more than a polished assessment at the end. Use the same language you would with an employee, describe behavior and effect rather than character, and write down what you agreed.
One boundary is worth stating explicitly, because interns will not raise it. A paid intern is almost always non-exempt, which means every hour is tracked and anything past forty in a workweek is paid at time and a half. Enthusiastic students volunteering evenings is a wage-hour problem, not a sign of commitment.
Converting an Intern to a Full-Time Hire, and Ending It Well If You Are Not
Decide with at least two weeks left, and tell the intern either way. An internship that trails off into silence is the version former interns describe to their classmates, and in a small business that reputation reaches the exact population you will recruit from next year.
Conversion is the cheapest well-vetted hire available to a small employer, because you have watched the person work for ten weeks. You know how they handle being stuck, whether they finish things, and how they take correction, which is more signal than any interview process produces. The candidate also knows the job, so ramp time collapses.
Four things make conversion actually work. Decide against a written bar rather than a feeling, using the same standard you would apply to an external candidate. Make the offer early, before the final year of study starts and competing offers arrive.
The other two govern the gap and the restart. Put a real start date on the offer, even if it is nine months out, and stay in contact in between. Then treat the returning intern as a new hire on day one, with a proper onboarding plan, because knowing where the coffee is is not the same as knowing the job.
If you are not converting, the ending still matters. Say so directly and early, give the honest reason, and separate it from the quality of their work where that is true, since most non-conversions are about headcount rather than performance. Offer a reference and mean it.
Ask for a proper debrief on the experience, using the prompts in intern exit interview questions, because a student will tell you things about your onboarding that an employee never will.
Then keep the relationship. Interns who leave well are the cheapest future pipeline you have, and the ones you turned down this year may be exactly right in two. Add them to a talent pool, and run the offboarding steps properly so accounts, equipment and access all close on the last day.
Frequently Asked Questions
Do you have to pay interns?
At a for-profit business in the United States, almost always yes. The Fair Labor Standards Act defines employing somebody as suffering or permitting them to work, so anyone doing work for your company is an employee owed at least the standard federal minimum wage of $7.25 an hour, plus overtime past forty hours in a workweek, unless an exception applies. The only real exception for interns is the primary beneficiary test, and it is narrow. An unpaid internship survives that test when it is genuinely educational, tied to a formal education program, run on the academic calendar, and structured so the student gets more out of it than the business does. If your intern is covering work you would otherwise pay somebody to do, the answer is that you have to pay.
What is the primary beneficiary test?
Courts and the Department of Labor use the primary beneficiary test to decide whether an intern at a for-profit employer counts as an employee under the FLSA. The question is who gets more out of the arrangement: the student, through learning, or the business, through the work the intern does. Department of Labor Fact Sheet #71 lists seven factors. They cover the shared understanding about pay, whether the training resembles what a school would provide, ties to formal education or academic credit, fit with the academic calendar, a duration limited to the period of beneficial learning, whether the intern’s work complements rather than displaces paid employees, and whether both sides understand there is no entitlement to a paid job afterwards. No single factor is decisive, and a court looks at the whole relationship.
Can you hire an unpaid intern if the school gives academic credit?
Academic credit helps but does not settle it on its own. Credit speaks directly to one factor, whether the internship is tied to the intern’s formal education program, and it makes several other factors easier to satisfy, because a credit-bearing placement usually comes with a faculty sponsor, a learning agreement and a term-length schedule. It does not cure the rest of the test. If the credit-bearing intern spends the summer covering a departed employee’s work, staffing a shift, or producing output the business would otherwise have paid for, the intern still looks like an employee and the credit will not save the arrangement. Schools sometimes tell employers that credit makes an unpaid placement legal. That is not what the Department of Labor guidance says.
Do interns need to fill out an I-9 and a W-4?
A paid intern is an employee, so yes, the full set applies. Complete Form I-9 with Section 1 done by the intern no later than the first day of work and the employer review within three business days of the start date, exactly as you would for any hire. Collect a Form W-4 for federal withholding and the state equivalent where your state has one. File a state new hire report inside your state deadline, which can be as short as seven days and can never exceed the federal outer limit of twenty days. Add the intern to payroll, to unemployment tax reporting, and to your workers compensation policy. There is no reduced paperwork tier for interns, students, or short summer placements.
Are interns covered by workers compensation?
For a paid intern the answer is almost always yes. An intern on payroll is an employee, and in almost every state a workers compensation policy covers employees on the same terms, with their wages included in the payroll your insurer uses to set the premium. An unpaid intern is the uncertain case. Many state workers compensation statutes define a covered employee by the receipt of wages, so a person who earns nothing may sit outside the system, and an injury could then lead to an ordinary liability claim against the business rather than a workers compensation claim. A few states have extended coverage to unpaid interns or let employers elect it. Before the intern starts, describe the arrangement to your carrier in specific terms and ask for written confirmation of what is and is not covered.
How much should you pay an intern?
Begin with the legal minimum and build upward. The federal minimum wage is $7.25 an hour, but plenty of states and cities require more, and whichever rate is higher governs, so for most interns that is the base. Federal law also has a youth wage: somebody younger than 20 can be paid $4.25 an hour for their first 90 consecutive calendar days on the job, if state and local law permit it. Beyond the floor, anchor on what an entry-level version of the same job pays in your area, discounted because an intern needs supervision and will not be fully productive. The May 2025 Occupational Employment and Wage Statistics survey from the Bureau of Labor Statistics publishes hourly percentile wages by occupation and area, and the tenth or twenty-fifth percentile for the relevant occupation is a defensible reference point. Whatever figure you choose, keep it consistent across interns doing comparable work.
Can you hire a high school student as an intern?
Yes, but youth employment rules apply and they are stricter than most employers expect. Federal law sets fourteen as the minimum age for most non-agricultural work, limits fourteen and fifteen year olds to specific occupations and to capped daily and weekly hours that differ during the school year, and bars anyone under eighteen from occupations declared hazardous. Many states add their own limits, and where federal and state rules differ the more protective one applies. Most states also require a work permit or employment certificate for at least some minors, usually issued through the school, before the student starts. Verify the rules for your state, keep proof of age on file, and build the schedule around the hour limits rather than discovering them afterwards.
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