Should You Pay Your Student Intern?

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The College Credit Issue

One way some employers skirt the requirements is by requiring that students do the internships for college credit. Many consider credit a form of compensation, even though it's not monetary, says InternBridge's Bottner. Indeed, a growing number of universities now require that students do an internship for credit in order to graduate, while also mandating that they not get paid.

However, college credit is not considered compensation under the federal Fair Labor Standards Act. This could leave an employer on legally shaky ground if the intern ever decided to sue them for back pay, says George Hlavac, chairman of the labor and employment law department at Allentown (Pa.) law firm Tallman, Hudders & Sorrentino and general counsel for NACE.

"My guess is that there are some employers providing credit and not compensation who are technically violating the law," Hlavac says. "There are probably others where the students truly are not employees, and therefore the provision of credit wages is fine."

There have been very few court cases where this scenario has played out, but if it ever did, "unpaid internships would probably disappear. Or if not disappear, get more stringent and become more regulated," InternBridge's Bottner says. In a follow-up e-mail message, Hlavac wrote, "several Labor Dept. rulings seem to suggest that as long as the internship is a prescribed part of the curriculum and is predominantly for the benefit of the student, the mere fact that the employer receives some benefit from the student's services does not make the student an employee for purposes of wage and hour law."

Challenges for Small Business Owners Most small business owners, especially those with small or nonexistent human resources staffs, may not even have a grasp of the federal law regulating internships. In a recent InternBridge survey of 12,084 students who completed internships in 2007, 18% said they didn't receive compensation or receive college credit for their services. "That's flat-out illegal," Bottner says. "Eighteen percent is an extremely high number, so I think a lot of organizations, especially small businesses, don't even know that the law exists."

Some small employers, like Sanjay Sarathy, would rather not deal with the headache of having to sort out the legal complications associated with an unpaid internship. Sarathy, vice-president for marketing at Vindicia, a billing and fraud-management software company in San Mateo, Calif., says his 40-person company has a blanket policy of paying all interns who come to work in its office. The interns currently working for his company are MBA students who receive about $20 an hour for their work. Giving the students a wage also pays off for the company in the long run; Sarathy sometimes hires his interns as future employees and wants to ensure they have a positive experience during their internship, he says.

Indeed, students who are paid during their internship report having a more positive experience in general than those who aren't paid, according to an Apr. 7 study released by NACE. Employers are offering undergraduate interns an average of $16.33 per hour and nearly $25 per hour for interns at the master's degree level, according to the survey.

"Students who express dissatisfaction with the internship program felt like they had been exploited because they hadn't been paid, and not being paid frequently coincided with being given what they referred to as 'not meaningful work,'" says Edwin Koc, NACE's director of strategic and foundation research.

How to Determine Salary

InternBridge's Bottner suggests that small business owners pay students minimum wage. "At the very least, that is just something that allows students who can't afford an unpaid internship experience to get paid something so they can cover their living expenses."

Small business owners who are uncertain about how much to pay interns can turn to their local university or college's career-services center, where counselors can give them direction on how much they should pay an intern. Pay level for an internship is typically determined by a student's year in school and field he or she is working in, NACE's Koc says. The average wage for a freshman is $12 an hour, while it is $16 an hour for a senior, he says. Pay tends to be higher for students who enter more technical fields, such as engineering or computer science.

Local schools will often post data on how much students are being paid for internships on their Web site. In addition, they can provide a sense of what other employers in your business' field are paying students, says RIT's Contomanolis.

"I don't think there is a student out there who wouldn't prefer to be paid for the experience they are getting," Contomanolis says.

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Damast is a reporter for BusinessWeek.com.