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The Perils of Hiring an Intern: What Businesses Should Know

June 3, 2015
Small Business
The Perils of Hiring an Intern: What Businesses Should Know
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Summer is almost here, and for some small businesses that means it’s intern season. This is an opportunity to get affordable short-term help with your business, but there are legal issues that can make hiring interns tricky.

We talked with Houston attorney Kevin Troutman of Fisher & Phillips, a firm that specializes in labor and employment law, about issues to keep in mind if you’re hiring interns this summer. Here are four good tips:

1. Decide: paid or unpaid

“To pay or not to pay” is the most contentious question when it comes to hiring interns. Businesses can choose either, although Troutman warns that working with unpaid interns is risky. Businesses with unpaid interns have to meet specific requirements under the Fair Labor Standards Act or risk getting audited by the U.S. Department of Labor.

“Unless a company really has in mind that they want to do something to benefit the community,” he says, “I would recommend going for the paid internship over the unpaid.”

To legally work with unpaid interns, you have to provide educational training, the FLSA states. You can’t assign unpaid interns to do work that directly benefits your business or that a paid employee would do, such as filing paperwork.

“There’s going to be a cost one way or another,” Troutman says. “It’s either going to be your time or it’s going to be your money. It’s probably going to be some of both.”

If you follow these standards, having an unpaid intern might actually slow your business’ productivity, Troutman says. On the other hand, if you hire a paid intern, you can treat that individual like a part-time employee and assign work that directly benefits your business.

“There’s going to be a cost one way or another,” Troutman says. “It’s either going to be your time or it’s going to be your money. It’s probably going to be some of both.”

The question of paying interns isn’t just a legal one; it’s an ethical question too. Some argue that unpaid internships put poorer students who can’t afford to work for free at a disadvantage, and some schools have cracked down on unpaid internships.

So legality and fairness are two issues to consider seriously when deciding “paid or unpaid.”

2. Interview candidates

Businesses should interview intern candidates — even unpaid ones — as they would employees, Troutman says. During the interview, make it clear whether you’ll be paying the intern, and stress that there is no guarantee that you’ll hire the candidate full time at the end of the intern experience. The conversation should be a two-way street; ask candidates about their expectations for the internship, and make sure they match yours.

3. Create a written agreement

If you decide to work with an unpaid intern, it’s crucial to make an agreement for the intern to sign before starting work. This agreement should include the duration of the internship, explicitly state that the intern will not be paid, and explain the type of educational training the intern will get from the experience, Troutman says.

The document doesn’t have to be long, but those three elements need to be included. Although it’s not absolutely necessary, Troutman recommends having an attorney draft the agreement.

4. Track interns’ time sheets

If you hire paid interns, have them track the time they work meticulously. They should document the time they start and end each day, minus any meal breaks longer than 30 minutes, Troutman says.

You have to pay interns at least minimum wage, but the average intern with a bachelor’s degree earns $17.20 an hour, according to a 2015 report from the National Association of Colleges and Employers. You’ll also have to pay your interns time and a half if they work more than 40 hours a week to comply with federal law. Some states, such as California, have more strict requirements; check with your state’s labor office for your state-specific overtime laws.

For more information about how to start and run a business, visit NerdWallet’s Small Business Guide. For free, personalized answers to questions about starting and financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @teddynykiel

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