The National Association of Colleges and Employers reported that in 1992 about 9% of college graduates had completed an internship. In 2008 that number jumped to 83%, most of whom weren’t paid. However, by 2011, studies showed that over half of college interns were paid… and that trend continues today.

Internship programs have many benefits whether they’re paid or unpaid. However, it’s important to take note that an intern is by no means a free employee. In fact, internships are highly regulated by the U.S. Department of Labor (DOL) and protected under the federal Fair Labor Standards Act (FSLA).

The DOL had a six-factor test to determine the legality of an unpaid internship that was rejected by four appellate courts due to the FLSA’s definition of employment being too broad. Since then, the test has been expanded and altered.

Unpaid Internships

There is a fine line between what an unpaid intern can and cannot do. Per the DOL the new set of criteria for an unpaid internship is as follows:

• Both parties understand that the intern is not entitled to compensation.
• The internship provides training that would be given in an educational environment.
• The intern’s completion of the program entitles him or her to academic credit.
• The internship corresponds with the academic calendar.
• The internship’s duration is limited to the period when the internship educates the intern.
• The intern’s work complements rather than displaces the work of paid employees while providing significant educational benefits.
• The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s completion.

As you may be able to tell, none of the criteria are yes/no questions, leaving room for ambiguity. Despite the confusion, an unpaid internship MUST pass this test. If it doesn’t, an intern needs to be compensated, making them an actual employee of the company.

However, an unpaid internship still has its benefits. For one, it can help a student (of legal working age)—or a new professional—learn about an industry or the operations of a company. Secondly, it can help a company mold an intern into the employee it wishes to have–an employee that knows the ins and outs of their company policies and how to perform job tasks.

Paid Internships

If an intern is being paid, they are an employee of a company. There is no argument to this fact–it falls under the same classification as a full-time, part-time, or temporary employee. This means a paid intern is entitled to the same legal protections as other employees.

Those being paid in an internship program need to complete a Form I-9 in addition to federal and state withholding forms. They are also guaranteed state or federal minimum wage for hours worked and overtime pay when applicable. In some cases, a paid intern may be entitled to statutory benefits like health coverage or paid sick leave.

Similar to an unpaid internship, a paid internship can still be mutually beneficial for the employer and the intern.

Getting an Internship Program Up and Running

So far there has been plenty of information to process about internships and internship programs. However, this shouldn’t be intimidating to you or your business–these programs can prove to be highly valuable.

Whether you already have an active program or not, developing a process for a future program will set you up for success. Now that you know the differences between paid and unpaid internships, and how they compare to regular employment, it will be useful for you to take advantage of a recruitment guide and an onboarding checklist.

You’ll also need to implement regular evaluations. After all, an internship program is a learning experience and the more you learn about an intern, the more educated your decisions will be in the future and vice versa—the more an intern can learn from you and your business, the more valuable the internship will be for them and their future careers. Consider using an eval form to be certain all evaluations are fair and uniform.

If you still have questions about internships or anything related to human resources, you can always speak with an HR specialist–they can steer you in the right direction.