Legalities of Nonprofit Internships

Dear Rita: Our nonprofit is getting inquiries from college students asking if we offer summer internships. I would love to have students assist us this summer, but we have no funds to pay them at regular employee wages. Do we have to pay interns? And if so, what is considered a legal stipend? Signed, Worried About Interns

Dear Worried:
I've been barraged recently with people asking: Interns, to pay or not to pay, and how to do either one legally. First I'll look at the issue of whether an intern can be classified as an intern (or is really an under-paid worker) and then look at the specific nonprofit issues of interns vs. volunteers. To allow employees to be exempt from the payment of minimum wages, it is not enough just to call them "interns."

When interns do not need to be paid minimum wage

The Fair Labor Standards Act (FLSA) requires that an internship must satisfy all the following criteria to be exempt from the FLSA:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction.

2. The training is for the benefit of the trainees.

3. The trainees do not displace regular employees, but work under their close observation.

4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer's operations may actually be impeded.

5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

If even one of these criteria is missing, you will need to follow the minimum wage and work standards set by your state.

But as you can see from reading these criteria, it will be difficult for many nonprofits to have any workers that could satisfy all six criteria, especially criterion #4.

For example, if a worker does something other than incidental clerical work, or does work that is billed against grant funds, criteria #4 is not satisfied. In other words, the very reason that many nonprofits want interns -- because they can do useful work for the organization -- is the very reason they cannot be properly classified as interns.

However, if the internship really is in the nature of job-training for the worker, and these criteria are satisfied, a worker could be classified as an intern and thereby exempt from the FLSA and California law.

[For a detailed case study applying these criteria to a nonprofit job-training program check out the full opinion letter from the California Division of Labor Standards Enforcement (DLSE) here. Note that even though the employer in this opinion letter is a nonprofit, the DLSE did not discuss whether or not these "interns" could be volunteers since they are working in commercial enterprises for their job training.]

But what about volunteer interns?

For nonprofits, however, the question is broader than just whether a worker fits the legal definition of intern per the DOL or a state Labor Commission. There is another classification of worker that nonprofits use heavily: volunteer. Both interns and volunteers are exempt from minimum wage laws and as a result, can be paid "stipends," or even nothing. So in addition to understanding whether the worker meets the legal definition of intern,we also need to know whether he or she meets the legal definition of volunteer.

Both the FLSA and state wage and hour laws define what constitutes a volunteer. Unfortunately, the definitions are not identical and are a bit vague, but they do provide some guidance.

The Department of Labor defines volunteerism

The federal Department of Labor (DOL) Wage and Hour Division has recognized that a person may volunteer time to religious, charitable, civic, humanitarian, or similar non-profit organizations as a public service and not be covered by the FLSA. Such a person volunteers freely for such organizations without compensation or expectation of compensation.

Such activities are described by the DOL as "ordinary volunteerism." In determining whether an activity is "ordinary volunteerism," the DOL considers a variety of factors, including:

  • Nature of the entity receiving the services (nonprofit, for instance)
  • Compensation of any sort (such as money, room & board, perks, etc.)
  • Expectations of benefits in the future
  • Whether the activity is less than a full-time occupation
  • Whether regular employees are displaced
  • Whether the services are offered freely without pressure or coercion, and
  • Whether the services are of the kind typically associated with volunteer work.

[Reference: DOL Opinion Letters FLSA 2001-18 and FLSA 2006-4]

If an individual volunteers in a part of a nonprofit which is commercial and that serves the public, such as stores or restaurants, the DOL does not recognize them as volunteers for FLSA purposes.

For example the US Supreme Court held in the case Tony and Susan Alamo Foundation v. Secretary of Labor, 471 U.S. 290, 303 (1985) that a religious nonprofit foundation whose workers received room and board but had absolutely no expectation or desire for wages since they were working in the foundation's ministry, were found to be employees since their work involved operation of commercial enterprises including trucking and operating a hotel.

Check your state law definition of "volunteer" with your state's Department of Labor to make sure there are not other factors that apply in your state. I strongly recommend that all nonprofits using volunteers have these workers sign agreements at the beginning of the volunteer relationship to clearly establish that there is no expectation of compensation and that the work they are performing is ordinary volunteerism and not a commercial enterprise.

What exactly is a stipend?

Remember: a primary factor in establishing a worker as a volunteer is that there is "no expectation of compensation." The DOL regulations do however allow nonprofits to pay for volunteer expenses, reasonable benefits,  and a nominal fee, or any combination thereof, without losing their status as volunteers. 29 C.F.R. 553.106. The "nominal fee" which is typically referred to as a "stipend" cannot exceed 20% of what you would have to pay a worker to perform the service and the amount cannot be tied to productivity or hours worked. [Reference: FLSA Opinion Letter 2005-51]

If a stipend exceeds $600 in a calendar year, it must be reported as 1099 income. The idea behind a stipend is that it covers the out-of pocket costs of volunteering but is not a wage. We haven't seen surveys on nonprofit stipends, but anecdotally most interns are volunteers or paid something like $1,000 for a summer. Government volunteer programs such as AmeriCorps often pay in the neighborhood of $11,000 per year for full-time work.

OK, so let's look again at these students requesting internships with your organization. If the work these individuals would be doing is ordinary volunteerism and there is no expectation of compensation, they may properly be classified as volunteers (rather than as interns). Alternatively, if the nature of the position is predominantly job-training rather than benefit to your organization or the public, then the position can be classified as an internship -- thereby allowing for a stipend to be paid that is below minimum wage.

In closing, while many nonprofits will find it easy and natural to have positions classified as unpaid volunteers -- such as "volunteer interns," it is likely to be quite difficult to classify positions legally as interns, and on that basis, to pay the position less than minimum wage.

For further reading, the New York Times articles linked below are excellent; note that they discuss interns primarily in industries such as entertainment and journalism, but are still relevant to nonprofits:

Ellen Aldridge is an HR attorney with the Nonprofits Insurance Alliance Group. She advises nonprofits on wrongful termination, wage & hour, discrimination, harassment and other employment issues -- before they are sued -- to help keep them out of court. She herself has served as an intern three times: at the ACLU doing clerical work, at the Sierra Club mailing materials, and at a county supervisor's office taking complaints about barking dogs and potholes. Arf!

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Comments

Are there any criteria about number of hours worked that might differentiate an intern from an employee?

Number of hours worked wouldn't make a difference in terms of distinguishing an employee from an intern. It's the scope of the duties performed. Hours worked would simply distinguish between full-time versus part-time employee status, IMHO. Check with an attorney licensed in your state for a legal opinion.
Debra

Volunteers might be able to stipulate their own hours therefore they have not been under the influence of the organization such as employees who may be delegated specified times to work.

Example

ABC organzation calls for volunteers:

local citizens respond stating as follows: "I can help two hours on Thursday" this allows the volunteer to contribute their time to help as needed without any defined setting, work or event at hand.

In contrast;

ABC organzation request Unpaid Interns - this must be restricted to full or partime students and must be presented via applicable school, college or university. Cannot interfere with students hours and must be approved by educational institution as part of the learning curriculum and presented for application by all students.

These may also be preseneted as workstudy opportunities where applicable learning institutions offer workstudy for its students who receive a stipen or compensation for no more than twenty hours weekly. See Financial Aid Restrictions. Also terms must align with grant funding where applicable.

All the articles I have seen on this topic are viewed from the perspective of the employer's responsibilities. I work with a graduate program in a university where we solicit and post internship offers, some paid, some not. All our students are adults and I feel that they can judge the appropriateness of the internships. Do we have any legal responsibilities for posting the offers? If an intern were to sue an employer relative to FLSA, might we also be liable?

If a non-profit intern/volunteer becomes a paid, hourly employee of the same non-profit in order to perform a specific temporary task that was not part of the volunteer/intern work, can that person continue being a volunteer/intern for tasks other than the one that is being compensated?
I am about to face this particular situation with an intern, so it's not as hypothetical as it sounds. In this case, we are going to form a temporary team of paid "telemarketers" to generate subscription sales (including base hourly wage plus commission on sales). The intern wants to apply for that temporary paid position, but also wants to continue to do other work on a volunteer/intern basis. Thanks!

We've looked at this issue too and as of now, we do not hire volunteer interns for anything other than full-time ongoing work. Reason is - we were told that hiring a volunteer for a short-term paid assignment, then returning that person to volunteer work, creates an appearance of a violation of minimum wage law. But as I am not an attorney and cannot give legal advice... suggest you contact the Department of Labor in your state and ask them directly.

I am interested to know if there is any difference if it is a "fellowship" rather than an internship.
Thank you for this article!

What are the implications for workers comp insurance? Should insurance coverage be increased to cover interns and volunteers?

This is the most descriptive article I've read on this topics. Very helpful in educating hiring managers.

But the fact is that thousands of interns in nonprofits and government (like county hospitals) do useful work for the nonprofit and get stipends. Aren't you telling people not to jaywalk when a million people do it everyday? Yes it's illegal but the realities of practice should also be taken into account.

The other question is ethics. The question is worth raising: are nonprofit workers, directors, supporters, and donors justified in demanding that managers acquire the competence to meet their budgets without resorting to exploitation and skirting the law.

Rita Responds:
There are a number of interesting comments on this article and I wanted to take a minute to address a few.
- The number of hours an intern works is not relevant to the legal test of whether they satisfy the criteria for being an intern. Under the definition of "volunteer" the DOL does look at whether the work is full time - as it generally considers volunteer work to be less than full time work - although this is not a strict requirement. If the other criteria for establishing a volunteer relationship are all present, working full time will not necessarily defeat the worker's status as a volunteer.
- Employees can volunteer for their own non-profit employer. However, there are strict rules which must be followed to allow employees to volunteer. The work must be outside the employee's regular working hours and the volunteer work must not be the work that the employee normally does. For example, a bookkeeper could volunteer to take kids on an overnight camping trip for the weekend, but could not volunteer to keep an accounting of the funds raised in the walk-a-thon. Remember, if you have an employee volunteer, have them sign an agreement for each volunteer assignment that defines the voluntary nature of the work, that it happens out of regular working hours, and that it is not the employees regular duties.
-In many states, employers can chose to cover their volunteers with workers' compensation coverage. Check with your workers' compensation insurance broker for further information.
-I doubt job placement services, such as campus employment offices could be held jointly liable for minimum wage violations at a workplace where they referred students. However, any "joint employer" can be held legally responsible for the minimum wage violations. A temporary agency or an agency which actively places students to "intern" for another organization may be considered joint employers thus creating joint liability. However, since students are generally not aware of these laws, it might be helpful if campus employment offices did some screening so it was not referring its students to employers who do not follow the law.
-Regardless of what you call the relationship - be it "intern" or a "fellowship", the worker needs to be found exempt from minimum wage laws in order for the employer to not follow the laws regarding the payment of wages. So to be exempt, a worker on a "fellowship" would need to fit either into the intern or volunteer exemption to not be paid as required by law.

After reading the article, I did a thorough research on DOL's regulation on unpaid internships. Those regulations are for "For- Profit" businesses that hire unpaid interns. More information can be found on : http://www.dol.gov/whd/regs/compliance/whdfs71.htm?loc=interstitialskip

I have questions about this article's assertion that stipends for nonprofit volunteer interns are legal. We consulted an attorney about this in NY state some years ago and we were told that stipends violate minimum wage requirements and are illegal - even when the stipends are for nonprofit volunteers. For this reason, we've limited ourselves to reimbursing our interns for expenses such as transportation.

I'm not an attorney (and don't play one on TV), and I'll just offer this observation about many internships in the greater DC metro area: What is commonplace is that internships that take place during the academic year (usually just one semester, spring or fall) are not paid while internships that are made available during the summer are paid, ala "summer jobs."
Regards,
Bill Huddleston
The CFC Coach
BillHuddleston1@gmail.com

What an intriguing observation, Bill! Do you have a guess as to why this is so? Jan

Jan, I also think that a number of the spring/fall internships themselves are not full time, meaning not 5 days a week. They're more in the nature of "I have classes MWF, is it okay if I come in on Tuesday and Thursdays?", etc. The summer ones tend to be 5 days a week. Also in the DC area a number of other entities (law firms, what's left of the "Big 8, (Big Two?whatever) :) use the summer internships as almost trial jobs. My niece happens to have just graduated from George Washington University (and I was on the National Mall as First Lady Michelle Obama gave the commencement speech), it was really inspiring. This is connected to a comment about internships in this way: Last summer my niece interned with one of the accounting firms (she's a finance major, and editor of the school paper). After the internship ended, which was after her junior year, she was offered a full time job starting summer 2010. Due to the internship schedule, last year's interns who recieved job offers, actually start in mid-August, after the current interns have finished their stay. Regards, Bill Huddleston Fairfax, Virginia The CFC Coach

Thanks so much, Bill. On one hand I think internships are great. On the other hand, because they are so much used now as unpaid (or very poorly paid) apprenticeships and try-outs, the impact is to eliminate people who cannot afford to work for a year as interns. The film "Pursuit of Happyness" with Will Smith showed this very clearly as this low income African American man (based on a true story) is exultant when he gets an internship at Dean Witter only to discover it is unpaid. He and his son end up living in a homeless shelter and in bathrooms so that he can do the internship. Jan

This article on interns and stipends is an issue with one of my mental health clinic clients that stipends interns at the MFT, MSW and PsyD levels, which present a unique layer of issues to the general topic. This Blue Avocado article was really helpful in confirming our approach with this client. Thanks so much!

Rita Responds to LKL: You are correct, New York state law has an explicit definition of "volunteer" at Part 143, Title 12 of Codes, Rules and Regulations which pertain to Minimum Wage requirements for Nonprofit entities. Those regulations contain the following definition: (e) Volunteer. The term volunteer means a person who works for a nonprofitmaking institution under no contract of hire, express or implied, and with no promise of compensation, other than reimbursement for expenses as part of the conditions of work. This defintion would not allow a worker to receive a stipend in addition to reimbursement for expenses and qualify as a volunteer.

I would like to see some clarification on point #3..."Do not displace regular employees but work under close supervision." I have seen some interpretations of this point to mean "doing the work that ordinarily would be done by an employee". By that interpretation, there is concern about practically all volunteer work in that if a volunteer didn't do that activity, it would need to be done by an employee. This will become even more important as today's boomers want to use their skills to volunteer, not just "stuff envelopes" type of work.

I'm wondering what the process is for getting these Volunteer Interns college credit. Is this something the student takes care of or is this the responsibility of the non profit? Thanks for your informative article!

If the intern meets the requirements listed above, and can indeed be classified as an intern, do you recommend paying their stipend through payroll (withold taxes), or issue them a 1099 at the end of the year? Also, if they meet the requirements for the intern, but also meet the requirements for a volunteer, which classification would you recommend? Thanks!

I'm curious about the situation where a college student actually pays to do an internship at a non-profit. My daughter has discovered several of these opportunities. The fee is usually not excessively high, but it is prohibitive for some students. The student intern often ends ups doing menial tasks such as filing, running errands, and pouring coffee, but pays for that privilege of doing this work at a coveted non-profit such as a theatre or a museum. The work performed suggests that the student would not qualify as an intern because the job does not meet the listed requirements, but does the fact that the student paid a fee to participate in the program change anything?

As a non-profit historical society, can we pay an individual as an "Office Manager/Volunteer Coordinator" and allow her to also serve as a volunteer (no pay) Gift Shop Manager? Our gift shop is "commercial" with revenue helping to support the non-profit, but as a manager, she would not be "working" in the gift shop filling a shift, but only managing, ie., scheduling, ordering, planning, etc. Her paid work would be separate from the gift shop management.

If she is classified as an exempt employee -- that is, exempt from overtime rules and FLSA -- you do not need to pay her for the Gift Shop work, as exempt employees are paid by the job, not by the hour. If she is nonexempt, you should pay her. There are a few ways in which you can have nonexempt staff work as volunteers, but the paperwork is very, very dififcult, and you're much safe just paying her for the time as Gift Shop manager.

Internship paid or unpaid could benefit the orgnazations mission and vision without question. In good concience why should NPO's expect to conintue engaging volunteers and interns without some compensation that allows the hiearchy to increase his or her wages. This could in some instance be considered potential discrimination.

Many people are willing to volunteer for little or no wages if they sincerely support the mission. In the end every person wishes to be compensated for their time and yet IRS places a catch 22 clause when stressing no part of donations may be used for the enurmment (benefit) of persons. When they do not allow for cash benefits to go out to benefactors of the charitable then why should executives, interns and other staff be paid high end compensation.

Charity means to give without restriction and yet America has allowed our government to restrict charity in America but not in countries outside the USA. I propose that Americans stop contributing until the laws change to benefit both American based charitites for American causes or to redefine the IRS rules on charitable contributions where the same apply to foreign countries as to Americans when asking america's population to become contributors.

So I am currently an intern and I am applying for food stamps, but I realized that if my non-profit is not following all the rules, I could inadvertently get it in trouble! I am working for this non-profit as a part-time lobbyist (25-30 hours per week) labeled "intern". I am paid a stipend of $1,500 for 4 months of work. Is this legal? I hope so, because otherwise I do not want to apply for food stamps because I do not want to get this non-profit in trouble. They do such good work! Do you have any advice? Please help!

You are being paid, therefore you are not a volunteer. Minimum wage laws might apply. Doesn't sound like this compensation comes anywhere near a minimum wage. Suggest you check with your state's Department of Labor to ask whether this type of stipend is permitted for a nonprofit "intern" under your state's laws and federal laws. If yes, find out what requirements exist for it to be considered a qualifying "internship." If your current arrangement is a problem you will do your organization a favor by informing them, so that they can take any necessary corrective steps. And if you are genuinely in need of food stamps, take care of yourself. Access to food is a basic survival issue.

I was a paid intern for a year did an Americorp vista program. I found it engaging and challenging but my only concern was that non-profits put to much weight on our shoulders in hopes for big return of investments. We lived off a living stipend for a year, I did my term of service in Philadelphia where price of living of was extremely high. I lived off of food stamps for a year, this experience made my Program worth the year of service.

www.southernbland.com

The regulation cited in this article, 29 C.F.R.§ 553.106, is not applicable to non-profit corporations, only to agencies of state and local governments. Section 553.100 makes clear that the purpose of this entire subpart of the regulations is to "define the circumstances under which individuals may perform hours of volunteer service for units of State and local governments without being considered to be their employees during such hours for purposes of the FLSA."

Likewise, FLSA Opinion Letter 2005-51 is expressly limited to governmental employees (that letter involved a volunteer coach at a public school). I have not seen the 20% rule in that letter applied to non-governmental organizations, including non-profits.

Finally, the provision of the Fair Labor Standards Act that allows payment of a "nominal fee" to a volunteer, 29 U.S.C. § 203(e)(4)(A), is expressly limited to "a public agency which is a state, a political subdivision of a state, or an interstate governmental agency."

I would be very wary about a non-profit's paying an intern any compensation at all, since that would seem to make the person meet the statutory definition of an "employee," and would strongly recommend that an organization consult its own counsel before proceeding with such pay (including stipends).

I work at a student paper, which also serves as a learning lab for journalism and other majors. We have some money to pay our employees, but we can't hire enough people to make the cogs go around.

Student employment says that we can't have volunteers work in positions where others are being paid. But if this is true, where are students supposed to go to learn? If we have only volunteers work in copy editing for example, what do we do when there is no volunteer interest in that position.

We have are part of a public university and have an annual budget provided for us by our associated student body. We have some ad income as well.

Thoughts? The paper can't afford to pay every volunteer.

I am concerned with the amount of time that some interns work from home. We do not have much work space in our facilty and we allow our interns to do some work at home. What are your thoughts on allowing interns to work at home as long as they are still learning and having continous communication with their supervisor? We are a non-profit so our intern positions are all unpaid. The are aware of this when they apply.

What advise can you provide me?

That's a really interesting question. You might consider trying to get professional legal counsel about it. I suspect this type of arrangement will draw many questions. Ex: can interns who don't work on your premises really get proper training and receive appropriate supervision? If you believe that they do, you may need to be able to document and prove that your interns are getting sufficient benefit to justify the no-pay situation.

Hello, Rita:

I am a Marriage and Family Therapist Intern in California. The Board of Behavioral Sciences requires Interns to be either volunteers or W-2, and do not allow 1099 because it is for independent contractors, and MFT interns are not independent but require licensed supervision. Only licensed private practitioners can file 1099 according to the BBS (and also California Association of Marriage and Family Therapists, or CAMFT).

My agency classified me as a volunteer and proceeded to compensate me with a stipend paid through a 1099, and exceeded $600 in a calendar year. This appears to match this statement in your article:

"If a stipend exceeds $600 in a calendar year, it must be reported as 1099 income."

However, the comment by Anonymous on 5/6/11 limits this:

"Finally, the provision of the Fair Labor Standards Act that allows payment of a 'nominal fee' to a volunteer, 29 U.S.C. § 203(e)(4)(A), is expressly limited to 'a public agency which is a state, a political subdivision of a state, or an interstate governmental agency.'"

My agency is independent and non-profit, but not a public agency that is a state, subdivision of a state, or interstate governmental agency. It is regulated by the state and possibly federal government, however.

Must a volunteer (intern) with a stipend be paid by 1099 in California? Would paying the stipend by W-2 be illegal or wrong in any way?

My accrued hours for the past year are in jeopardy of being denied by the BBS due to my stipend being paid through a 1099. The agency's lawyer admits no mistake, and HR states that they are unable to reclassify me retroactively as a W-2 in order to make my hours count for the BBS.

Furthermore, it was suggested that if I paid back almost a year's worth of stipend, the agency would be able to classify me as a volunteer, as the 1099 has not been issued yet for this year (2011). I would still lose two months' worth of hours, because I had started my internship in October 2010, and the 1099 had already been issued for that year.

What are my options? What are the agency's options? What are the fines and penalties, if any?

Dear MFT Intern: I suggest that your agency seek the advice of a CPA with regard to the tax reporting of this stipend . The BBS rules are separate from the tax laws, and they may prohibit the payment of a stipend if it only recognizes W-2 employment or volunteer hours for intern credit. The payment of stipends is problematic from an employment law perspective if the intent of the stipend is to "compensate" a volunteer - because a worker cannot be classified a "volunteer" if there is an expectation of compensation. Stipends should be to reimburse for actual expenses of the volunteer assignment to avoid any argument that the stipend is really "compensation". For that reason, most nonprofits stay away from stipends that are in excess of reimbursement for expenses. I would agree with the BBS that an intern would not meet the criteria to be classified as an independnet contractor because of the professional supervision required. The other option is payment of at least minimum wage for all hours worked - and that payment can be pursuant would be reported on a W-2. Good luck - Rita

Thank you so much, Rita!

Great! I agree.

My non-profit can no longer afford to pay our teen docents. Many of them want to continue in the same capacity as volunteers. Is there a legal problem with this?

I'm not a lawyer, but I don't see a problem with this. Just make sure that you have properly terminated their employment, and don't make any written or verbal statements promising them they will be paid if you get more money. Good luck with your work!

I disagree. I've heard experts say that it is very inadvisable to try to convert paid staff into volunteers. You may wind up creating an appearance of illegality re wage laws. Nonprofits need to be careful about this. Penalties for violations of the law, even if unwitting, could be significant. There is also an ethical issue about non-exploitation of workers.

I found this post incredibly helpful. I have a question about the payment of a stipend for a graduate student PSyD completing a one-year, full time internship at a non-profit. The internship is required in order for him to receive his degree. The non-profit is in Washington DC. The student receives a monthly stipend and is considered an independent contractor, not an employee. The student sees a full case load of patients and receives clinical supervision from the non-profit's staff psychologist. I am pretty sure that the hours he sees these patients are charged against a grant. The student also works closely with the non-profit's case load managers, etc. Is it right for the non-profit to not classify him as an employee?

We discovered that stipends might be considered illegal in NY State; here, compensated employees must be paid minimum wage, we were informed after consulting an attorney. Laws might differ in DC. Perhaps you should consult your local department of labor to get legal advice about the issue.

The article and comments have been very helpful. My question involves volunteers who agree to work for a US nonprofit running a project in another country. If the money they are receiving is minimal - just enough to help cover very basic living expenses ( less than the Federal per diem for that country) would they be considered employees or volunteers? They are definitely receiving less than minimum wage b/c they offered to come teach in order to volunteer their time. The money they are receiving is to help defray costs but we are not sure if they should be considered employees - but then we have the issue of minimum wage - or volunteers being reimbursed for expenses. And if so, would they receive a w2 or a 1099? I cannot find any information on this b/c they are working/volunteering abroad, yet are working for a US 501c3. Thank you for any help.

An organization for which I consult would like to start an internship program. Our COO would like to pay interns the equivalent of minimum wage. I know this payment would keep us out of wage-and-hour trouble, but then the question becomes about what's considered an "employee?" Does the minimum wage payment make the intern an employee for the purposes of other benefits to which regular employees are entitled (health insurance, 401(k), etc.)?

Under these circumstances, would be be legitimate to consider the intern a contractor for the purposes of IRS, DOL and our state's tax and labor agencies? But an intern for the purposes of her or his college credit, work experience, etc.?

Thanks for your help.

Be careful! Federal and state laws apply. Can't offer legal advice, not being an attorney... but you can view such rules on both Federal and state Department of Labor websites. Generally speaking my opinion is you usually need to treat compensated individuals as employees. There are tests that apply regarding who is and is not your employee... if in any doubt get comptent legal advice. Don't risk a penalty for failing to manage payroll in a legally compliant way.

Rita Responds:

Once you pay an intern the individual would indeed be an employee for purposes of the law, but that does not make them necessarily eligible for your other non-legally mandated employee benefits. The terms of eligibility for those benefit plans is typically described in your agency's employee handbook and/ or the summary plan document for the benefit. It is lawful to have different benefit levels for different categories of employees, as long as the categories are not discriminatory (e.g. only males get medical benefits). So you could have a policy that intern positions are temporary in nature and are not eligible for health insurance, as long as there is nothing in the insurance contract or employee handbook to the contrary. Depending on the size of your organization, the Affordable Care Act may come into play in 2014 imposing penalties under certain circumstances health benefits are not provided for employees working 30 hours a week or more. I recommend that you discuss this issue with your employee benefits broker if a review of your handbook/summary plan documents do not provide clear guidance. Interns should never be classified as an Independent Contractor with pay reported via a 1099. They would not meet the legal standard for such a classification and this would expose your agency to significant legal risk.

 

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