Updated: Apr 21
Paid vs Unpaid
An estimated 40% of annual internships offered in the US are unpaid - meaning those students and young professionals aren’t earning wages for the work they contribute to their employer.
Though discussions frequently play out on whether unpaid internships are an ethical practice and a possible negative impact on the economy, it’s ultimately up to each company to decide whether they want to run an unpaid or paid internship program.
In order to make an informed judgment call, it’s important to first understand why you are offering an internship in the first place.
Why Do You Run Your Internship?
It’s easy to get caught up running an internship each year without taking the time to reflect on why you run an internship in the first place. Is it to support your employees and projects with more manpower? Is it to give back to the community? Is it to find your future employees?
Regardless of the why behind your program, the expectations of your intern and the internship as a whole should match the compensation provided.
Unpaid internships result in a “middle ground” between job shadowing and a fully paid internship. The unpaid internship path can hinder the value derived by both companies and interns. Interns don’t get the full experience because they often end up doing menial tasks. Managers don’t fully support these students if they see it as “free work.”
If value-driving work is an important output from your internship program, it is time to evaluate how a paid internship will look. If you do decide to take the internship route still, you’ll need to evaluate whether the company or the intern is deriving most benefit from the relationship.
Legal Requirements for a Paid Internship
In certain states, paying an intern is legal requirement depending on the responsibilities and work associated with the internship. In California, the Primary Beneficiary Test is used to determine whether an internship should be paid or unpaid. The test differentiates on whether the employer or the intern is deriving the majority of the value. If the employer is the primary beneficiary, the intern must be paid. According to this test, an intern is a primary beneficiary if:
The intern knows that the position is unpaid.
Training is similar to training received at an educational institution.
The internship is tied and integrated into the student’s educational program or degree.
The intern only works during periods that do not conflict with academic commitments or the academic calendar.
The internship only lasts for a period of time in which it imparts beneficial learning upon the intern.
The intern’s work does not replace existing employees’ work while providing significant educational benefits.
The intern understands that this internship does not provide entitlement to a job.
Unless all of these points are met, the internship is required to be paid. This is a useful baseline to follow for companies since it can be easy to misjudge the opportunity cost that an intern gives up in order to work. Even beyond the quality of work done, the nature of paid internships will bring additional upsides that serve to keep your business running and identifying top talent.
Paid Internships Draw From A More Equitable Talent Pool
Unpaid positions may distract from a student’s other obligations or opportunities, especially when it comes to managing student debt or building real skills. Students from lower-income backgrounds are often unable to take unpaid internships as they lack the financial safety net to sustain themselves in the meantime. Students who can “afford” to take a summer working an unpaid internship can typically lean on their family or network to balance the financial lift.
More than four out of ten undergrad students come from low-income households in the US, with almost 60% of Black students and 53% of Hispanic/Latino students falling into this category. Only 33% of white students come from low-income, demonstrating the disparity in being able to sustainably take an unpaid internship. By providing paid internships instead, you can tap into a more diverse talent pool and enjoy the benefits of higher performance and greater employee satisfaction.
Paid Internships Pay Dividends
When an internship is managed correctly, its cost is significantly offset by the value of adding a trained, committed member to your team. Paid internships are 52% more likely to result in a full time job offer compared to those that had unpaid internship experience. Even when companies are running lean, maintaining a focus on cultivating talent is a long-term investment that pays dividends as margins widen again. Attracting, hiring, and maintaining the best talent gives your organization a strong competitive advantage. Prepare your workforce to execute in all conditions.
Invest Your Time and Capital with Confidence
There’s no silver bullet to running a successful internship. Every company has specific needs from their interns, their managers, and their talent acquisition team. Internship on Demand pre-internships are built with company-tailored outcomes in mind. Our pre-internship curriculum is tailored to your open roles, your hiring goals, and managed by Internship in Demand mentors. Highly-qualified, highly-engaged candidates arrive at a fraction of traditional internship recruiting costs. Converted interns arrive trained, with a strong network, and ready to produce from day one.
Internship on Demand bridges the gap between college and career through hands-on work experience at today's most innovative companies. We design, build, and manage tailored pre-internships to reduce recruiting spend, cut training time, and improve intern conversion and employee retention.
Get in touch with our team to learn more today →
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