Welcome to summertime: warmer weather, graduations, and summer employment for students. A lot of organizations are hiring summer interns during June, so be sure to properly prepare for the arrival of these temporary employees.
Employees, you ask? Yes, most likely interns will be classified as employees instead of independent contractors. Even though the assignments are temporary and the work may be directly related to the student’s educational objectives, education stipends and independent contractor classifications are rare. One common exception for nonprofits is when you use an AmeriCorps VISTA member – although these people receive living allowances, they are not employees of the nonprofit
The same IRS rules for determining an employee versus an independent contractor apply to internships, as do state and federal payroll taxes.
Students hired as temporary employees need to complete the same human resources paperwork as any other temporary employee, including Form W-4 and nondisclosure agreements.
Don’t be confused by naming conventions. Using the word “stipend” for internship compensation does not change the treatment of interns from employees to independent contractors. Non-taxable education stipends (aka scholarships or fellowship grants) are only applicable to students receiving funding from an organization whose primary function is to carry on educational activities and have strict requirements for how the funds must be used.
Interns should be issued employee handbooks so they are aware of standard office protocol. A job description wouldn’t hurt either; most people perform best when expectations are clearly explained. Don’t forget to explicitly state if the internship is paid or unpaid.
The Fair Labor Standards Act does allow nonprofits to offer unpaid internships for those who freely donate their time to nonprofit organizations. Volunteers qualify as unpaid interns.
The Department of Labor also has standards used to determine whether a for-profit organization must pay an intern or whether they can be considered a “trainee” that does not have to be paid. Although not specifically intended for nonprofits, these guidelines are valuable for establishing nonprofit internship programs, whether paid or not, since worker’s compensation claims can arise from employment relationships, but injured volunteers often sue the nonprofit.
Essentially, the controlling question is “who gets primary benefit – the intern or the hiring organization?” If all of the following factors are met, the intern can be considered a trainee, to whom the minimum wage and overtime provisions do not apply:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment.
- Theinternship experience is for the benefit of the intern.
- The intern does not displace regular employees, but works under close supervision of existing staff.
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded.
- The intern is not necessarily entitled to a job at the conclusion of the internship.
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Be sure to check state law in the state the intern will be working for any additional regulations; the Texas Workforce Commission doesn’t currently have additional labor laws specific to interns. Even if your internship program meets both state and federal requirements for unpaid interns, consider possible negative press that may arise. How would your funders and other stakeholders feel about unpaid interns?
Internships provide opportunities for both students and employers. Be sure your organization has considered all advantages and disadvantages other than just budget when evaluating an internship program. These students could be future employees, board members or donors!
