Unpaid Internships: When Do Interns Have to Be Paid?
Quick Answer
Under federal law, a for-profit business can offer an unpaid internship only if the intern, not the business, is the "primary beneficiary" of the relationship. The Department of Labor uses a seven-factor test that looks at things like whether there's no expectation of pay, whether the internship is tied to the intern's education and whether the intern complements rather than displaces paid employees. If the intern is really an employee, they're entitled to minimum wage and overtime. When in doubt, pay interns.
Internships can be a great deal for everyone. Students get real-world experience, and small businesses get fresh energy, new ideas and a pipeline of future hires. But many small business owners aren't sure whether they can offer an internship without pay, and getting it wrong can mean owing back wages.
The answer under federal law depends on who benefits most from the arrangement. This guide explains the Department of Labor's primary beneficiary test in plain language, how the rules differ for nonprofits, what state law may add, how to track intern hours and how to set up an internship program that works for both sides.
Note: This is general information, not legal advice. Federal rules come from the Fair Labor Standards Act (FLSA) and Department of Labor guidance. State law may add its own rules on unpaid internships. Have an employment attorney review your program before offering unpaid positions.
The Short Answer
| Situation | Generally must be paid? |
|---|---|
| Intern at a for-profit business mainly doing productive work | Yes |
| Intern at a for-profit business in a structured, educational program tied to school, where the intern is the primary beneficiary | Not necessarily |
| Volunteer intern at a nonprofit charity or public agency, with no expectation of pay | Generally no |
| Intern who replaces or does the same work as paid staff | Yes |
| Intern promised a paid job at the end | Weighs toward paying |
The Primary Beneficiary Test
According to the Department of Labor, courts use the "primary beneficiary test" to decide whether interns or students working for for-profit employers are employees under the FLSA. The test looks at the "economic reality" of the relationship to decide who mainly benefits: the intern or the business.
The Department of Labor lists seven factors:
- No expectation of pay. The intern and employer clearly understand there is no expectation of compensation. Any promise of pay, express or implied, suggests the intern is an employee.
- Educational training. The internship provides training similar to what would be given in an educational environment, including clinical and other hands-on training.
- Tied to formal education. The internship is tied to the intern's formal education program by integrated coursework or academic credit.
- Academic calendar. The internship accommodates the intern's academic commitments by corresponding to the academic calendar.
- Limited duration. The internship lasts only as long as the intern is getting beneficial learning.
- Complements, doesn't displace. The intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits.
- No promise of a job. The intern and employer understand the internship is conducted without entitlement to a paid job at the end.
The Department of Labor says the test is flexible and no single factor is determinative. Whether an intern is an employee depends on the unique circumstances of each case.
Applying the Test: Examples
Likely an Employee (Should Be Paid)
A small marketing agency brings on a "summer intern" who isn't connected to any school program. She spends most of her time writing client social media posts, which a paid coordinator used to do. There's no structured training, and the agency mentions she could be hired at the end. This arrangement mainly benefits the business, and the intern is likely an employee entitled to minimum wage and overtime.
Possibly an Unpaid Internship
A small engineering firm partners with a local college. Students earn academic credit for a 10-week internship that follows the school's semester. Each intern has a learning plan, shadows engineers, works on practice projects reviewed by a mentor and attends weekly training sessions. Interns don't replace paid staff, and everyone understands there's no pay and no promise of a job. Several factors point toward the intern being the primary beneficiary, though the firm should still get legal advice.
Factor Scorecard
| Factor | Example A (agency) | Example B (engineering firm) |
|---|---|---|
| No expectation of pay | Unclear | Clear |
| Educational training | Little | Structured |
| Tied to school | No | Yes, academic credit |
| Academic calendar | No | Yes |
| Limited duration | Open-ended | 10 weeks |
| Complements paid staff | Replaces paid work | Complements |
| No promise of a job | Job mentioned | No promise |
Nonprofits and Public Agencies
The Department of Labor notes that the FLSA exempts certain people who volunteer to perform services for state or local government agencies, and that unpaid internships in the public sector and for nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. Nonprofits should still be careful when interns do work that would otherwise be paid, or work in commercial activities. See how to track volunteer hours.
If an Intern Is an Employee
If an intern is actually an employee under the FLSA, the Department of Labor says they're entitled to both minimum wage and overtime pay. That means:
- At least the federal minimum wage, or your state or local minimum if higher, for all hours worked.
- Overtime at one and one-half times the regular rate for hours over 40 in a workweek, unless an exemption applies.
- Accurate records of hours worked.
- Following any child labor rules if the intern is under 18. See how many hours teens can work.
Paid interns are treated like other employees for wage and hour purposes. Calling someone an "intern" doesn't change that.
State Law Can Add Requirements
State law may have its own rules about unpaid internships, and state rules can be stricter than federal law. Check your state labor department's guidance before offering an unpaid internship, especially if you have locations in more than one state.
Paid vs. Unpaid: Which Should You Offer?
| Paid internship | Unpaid internship | |
|---|---|---|
| Legal risk | Low | Higher if factors aren't clearly met |
| What interns can do | Real productive work | Mostly educational work that complements staff |
| Who applies | Broader pool, including students who can't afford unpaid work | Students who can afford to work unpaid |
| Structure needed | Normal supervision | Close ties to school and a structured learning plan |
| Hiring pipeline | Strong | Limited by restrictions on job promises |
For most small businesses, a paid internship is simpler and safer. It lets interns do meaningful work, opens the role to more candidates and avoids the risk of back wages.
How to Set Up an Internship Program
- Decide paid or unpaid, and get legal advice if unpaid.
- Write a learning plan with clear goals and skills the intern will build.
- Assign a mentor who has time to train and supervise. See mentoring program for small business.
- For unpaid internships, partner with schools so the internship ties to coursework or credit and fits the academic calendar.
- Set a start and end date.
- Put the arrangement in writing, including pay or no pay, schedule and expectations.
- Track hours, whether paid or unpaid.
- Check in regularly and give feedback.
- Hold an exit review to gather feedback and discuss next steps.
Sample Internship Learning Plan
Internship Learning Plan
Intern: [name] | Mentor: [name]
School and program: [ ] | Academic credit: [yes/no]
Dates: [start] to [end] | Schedule: [days and hours]
Pay: [$ per hour / unpaid, with reason]
Learning goals
1. [Skill or knowledge]
2. [Skill or knowledge]
3. [Skill or knowledge]
Training activities
• [Shadowing, workshops, practice projects]
Check-ins: [weekly with mentor]
Final review: [date]
Tracking Intern Hours
Track intern hours whether the internship is paid or not. For paid interns, you need hours to pay minimum wage and overtime correctly. For unpaid interns, accurate records help show the internship stayed within the planned schedule and academic calendar. Have interns clock in and out just like employees. See how to track employee hours.
Common Internship Mistakes
- Calling an employee an "intern" to avoid paying wages.
- Using unpaid interns to replace paid staff.
- No connection to a school program for unpaid internships.
- No structured training or mentor.
- Open-ended internships that go on for months.
- Promising a job at the end of an unpaid internship.
- Not tracking hours.
- Ignoring state law.
Internship Checklist
| Step | Done? |
|---|---|
| Decide paid or unpaid | |
| If unpaid, review the seven factors with an attorney | |
| Write a learning plan | |
| Assign a mentor | |
| Set start and end dates | |
| Put the arrangement in writing | |
| Track hours | |
| Check state law |
What Interns Can and Can't Do in an Unpaid Internship
| More consistent with an unpaid internship | More consistent with employment |
|---|---|
| Shadowing employees and observing work | Doing the same work as paid staff |
| Practice projects reviewed by a mentor | Producing work the business sells or relies on |
| Structured training sessions | Covering shifts or filling staffing gaps |
| Work tied to school learning goals | Routine tasks with no learning value, like cleaning or errands |
| A schedule that fits around classes | Full-time schedules with overtime |
This table is a guide, not a legal test. The Department of Labor looks at all seven factors together, and no single factor decides the answer.
Example: Turning an Unpaid Internship Into a Paid One
A small accounting firm used to offer unpaid summer internships, but interns ended up entering data and answering phones for clients, work a paid assistant would otherwise do. After reviewing the seven factors, the owner switched to a paid internship at $16 an hour for 20 hours a week over 10 weeks.
The cost was about $3,200 per intern. In exchange, interns could take on real client work with supervision, the firm attracted more applicants, and two interns were later hired as full-time staff, saving recruiting costs. The owner also no longer had to worry about back wages.
Interviewing and Selecting Interns
- Write a short internship description with learning goals, schedule and pay.
- Recruit through schools, career centers and local programs.
- Interview for curiosity and reliability, not just experience.
- Use the same fair process for every candidate. See the hiring scorecard.
- Confirm age and any child labor rules for interns under 18.
Making the Most of an Internship
A good internship helps the intern learn and helps the business build a talent pipeline. Plan a first-day orientation, introduce the intern to the team, give them a real project with a clear finish line and schedule weekly check-ins with their mentor. At the end, ask what they learned, what could be better and whether they'd like to stay in touch. Many strong future hires start as interns. See the new hire orientation checklist.
Questions Business Owners Often Ask
"Can I offer a stipend instead of hourly pay?" If the intern is an employee, they must be paid at least minimum wage for all hours worked, plus overtime where it applies. A stipend that works out to less than that doesn't meet the requirement.
"Does academic credit make an internship unpaid automatically?" No. It's one factor among seven.
"Can a high school student be an unpaid intern?" The same primary beneficiary analysis applies, along with child labor rules for minors.
Writing an Internship Agreement
Whether paid or unpaid, put the internship in writing. A short agreement should cover the dates and schedule, pay or the fact that it's unpaid, the learning goals, who the mentor is, any school credit involved and that there's no guarantee of a job at the end. For unpaid internships, the written agreement helps show that both sides clearly understood there was no expectation of pay, one of the seven factors. Have an employment attorney review it before you use it.
Converting Interns Into Employees
One of the biggest benefits of an internship program is finding future hires. If you want to hire an intern at the end, make the offer separately after the internship ends, so it's clear the internship wasn't a trial job with a promised outcome. Keep notes on each intern's strengths during the program, and invite strong interns to apply for open roles. Paid internships make this path simpler, since there's no concern about the job offer affecting the unpaid analysis.
Whatever you decide, review your internship program each year. Check whether interns' actual work still matches the plan, whether the schedule still fits the school calendar and whether pay rules or state laws have changed.
A short annual check like this keeps the program useful for interns and keeps the business on solid ground.
Ask former interns for feedback as part of that review; they'll tell you what helped them learn most.
Track Intern Hours With Updoot
Updoot's employee time clock lets interns clock in and out from a phone, tablet or kiosk, so you have accurate hours whether the internship is paid or unpaid. The payroll report shows hours and overtime for paid interns each pay period, and onboarding tools help you bring interns up to speed quickly.
Sources
- U.S. DOL: Fact Sheet #71, Internship Programs Under the FLSA
- U.S. DOL: Fact Sheet #23, Overtime Pay Requirements of the FLSA