Should You Pay Your Student Intern?

It's a thorny issue, particularly for small employers. But understanding the law and the shifting policies at colleges can aid the decision

Lisa Nickerson, owner of Nickerson PME, a 10-person marketing and public relations firm in the Boston area, runs a year-round internship program, calling participants "associates" to make sure they don't feel, as she puts it, like "lowly interns." The students, mostly from local colleges, get college credit and work experience, performing tasks like pitching press releases to clients, while Nickerson gets valuable help around the office—without giving them a paycheck.

"From my standpoint, if you take the time to put together a good program, you don't have to pay the student," Nickerson says. "There are an abundance of students who want that type of hands-on client experience."

Nickerson is one of a growing number of small business owners who feel comfortable offering students an internship experience without financial compensation. It's a model that is becoming increasingly controversial within the higher education community, where career-services professionals say students should be paid at least minimum wage. Complicating matters, some employers ask that the student receive college credit for their work in order to avoid having to pay them, a demand that puts students from low- or middle-income backgrounds at a disadvantage. It means students have to pay their college for that course credit, a cost that can add up to several thousand dollars.

"Increasingly, there are concerns from not just an ethical standpoint, but also potentially a legal standpoint [since] these people are doing work for you and not being compensated for that work," said Manny Contomanolis, director of the career-services office at Rochester Institute of Technology and president-elect of the board of the National Association of Colleges & Employers (NACE). "What are the implications of that, and what kind of message does it send to your own employees and community?"

Legal Definitions

An intern, by definition, is a professional in training, and employers using their services are required to adhere to strict standards set forth by the Labor Dept. under the federal Fair Labor Standards Act.

Business owners struggling to decide whether or not to pay their interns should review these six requirements to help them determine the thin line between an intern and an unpaid employee. To start, the law requires that the intern "receive training equivalent to a vocational school," which means that the intern could pay to receive the training somewhere else. An employer also must inform interns that the internship does not come with the "absolute guarantee of a future job," and tell them at the start that it is unpaid, according to the law.

Another requirement states that the intern "cannot take the place of a regular employee." It "is a big problematic spot" for small employers because they often use interns on a part-time basis to fill in for someone who is on maternity leave or on short-term disability, says Richard Bottner, president of InternBridge, a recruiting and consulting firm in Acton, Mass. The act also mandates that the employer "cannot get immediate benefit from the intern's work." Employers have trouble with this because "with internships in general, a company receives a benefit," Bottner says. "If you are doing hands-on work, you are benefiting the organization."

The employer should offer an unpaid internship program only if they can meet all six criteria. "It is probably hard to stay on the right side of the line," says Jane Lewis Volk, an employment lawyer at Pittsburgh law firm Meyer, Unkovic & Scott. "You just have to remember that, unless you are interested in really offering training to somebody in the field, you are not going to get cheap labor."

The College Credit Issue

One way some employers skirt the requirements is by requiring that students do the internships for college credit. Many consider credit a form of compensation, even though it's not monetary, says InternBridge's Bottner. Indeed, a growing number of universities now require that students do an internship for credit in order to graduate, while also mandating that they not get paid.

However, college credit is not considered compensation under the federal Fair Labor Standards Act. This could leave an employer on legally shaky ground if the intern ever decided to sue them for back pay, says George Hlavac, chairman of the labor and employment law department at Allentown (Pa.) law firm Tallman, Hudders & Sorrentino and general counsel for NACE.

"My guess is that there are some employers providing credit and not compensation who are technically violating the law," Hlavac says. "There are probably others where the students truly are not employees, and therefore the provision of credit wages is fine."

There have been very few court cases where this scenario has played out, but if it ever did, "unpaid internships would probably disappear. Or if not disappear, get more stringent and become more regulated," InternBridge's Bottner says. In a follow-up e-mail message, Hlavac wrote, "several Labor Dept. rulings seem to suggest that as long as the internship is a prescribed part of the curriculum and is predominantly for the benefit of the student, the mere fact that the employer receives some benefit from the student's services does not make the student an employee for purposes of wage and hour law."

Challenges for Small Business Owners Most small business owners, especially those with small or nonexistent human resources staffs, may not even have a grasp of the federal law regulating internships. In a recent InternBridge survey of 12,084 students who completed internships in 2007, 18% said they didn't receive compensation or receive college credit for their services. "That's flat-out illegal," Bottner says. "Eighteen percent is an extremely high number, so I think a lot of organizations, especially small businesses, don't even know that the law exists."

Some small employers, like Sanjay Sarathy, would rather not deal with the headache of having to sort out the legal complications associated with an unpaid internship. Sarathy, vice-president for marketing at Vindicia, a billing and fraud-management software company in San Mateo, Calif., says his 40-person company has a blanket policy of paying all interns who come to work in its office. The interns currently working for his company are MBA students who receive about $20 an hour for their work. Giving the students a wage also pays off for the company in the long run; Sarathy sometimes hires his interns as future employees and wants to ensure they have a positive experience during their internship, he says.

Indeed, students who are paid during their internship report having a more positive experience in general than those who aren't paid, according to an Apr. 7 study released by NACE. Employers are offering undergraduate interns an average of $16.33 per hour and nearly $25 per hour for interns at the master's degree level, according to the survey.

"Students who express dissatisfaction with the internship program felt like they had been exploited because they hadn't been paid, and not being paid frequently coincided with being given what they referred to as 'not meaningful work,'" says Edwin Koc, NACE's director of strategic and foundation research.

How to Determine Salary

InternBridge's Bottner suggests that small business owners pay students minimum wage. "At the very least, that is just something that allows students who can't afford an unpaid internship experience to get paid something so they can cover their living expenses."

Small business owners who are uncertain about how much to pay interns can turn to their local university or college's career-services center, where counselors can give them direction on how much they should pay an intern. Pay level for an internship is typically determined by a student's year in school and field he or she is working in, NACE's Koc says. The average wage for a freshman is $12 an hour, while it is $16 an hour for a senior, he says. Pay tends to be higher for students who enter more technical fields, such as engineering or computer science.

Local schools will often post data on how much students are being paid for internships on their Web site. In addition, they can provide a sense of what other employers in your business' field are paying students, says RIT's Contomanolis.

"I don't think there is a student out there who wouldn't prefer to be paid for the experience they are getting," Contomanolis says.

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