A Startup’s Legal Guide To Summer Interns

by / ⠀Startup Advice / June 28, 2012

Summer is upon us. For many young companies this means the potential or arrival of interns. Hiring interns is a great milestone for a young company and the use of interns is on the rise.

There are common legal pitfalls you should avoid this summer when hiring interns. Generally, we find that companies avoid problems when they view interns as an asset versus slave labor. Bringing on interns can be a huge advantage for your company besides the man hours they can contribute. Interns help to instill a great helping culture in your company, inject new ideas into the organization, create a hiring channel and help to distribute your brand. Keep this in mind with the following tips and you will benefit from your interns while staying legally compliant.

Unpaid Interns

Compensating an intern is dependent on the state in which you operate. The more important factors that many state agencies use to determine the validity of an unpaid intern include:

  • The training is for the benefit of the intern.
  • The employer derives no immediate advantage from the intern’s activities, and, on occasion, the employer’s operations actually may be disadvantaged.

Some unpaid intern programs also offer course credit to students, but this is not a requirement in many states. Your biggest legal risks come from the disgruntled voices of interns that may reach the various government labor agencies. Here are some best practices to reduce those risks if you decide to have unpaid interns:

  • Treat your interns like any other employee (hopefully this is good) and not as though they should be lucky to be working for your startup;
  • Make it apparent from the beginning that the program is about learning (include this in the offer letter to the intern and in any documentation that you give them throughout the intern period);
  • Give them meaningful tasks, but have a learning or mentoring session associated with each task; and
  • Provide direct supervisors that meet with interns at the end of each week for debriefing and learning sessions.
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Hiring Interns as Independent Contractors

A number of companies hire interns as independent contractors because they can avoid the hassles that accompany employees (witholdings, employment taxes, etc.). The major problem with this is that most intern relationships look nothing like an independent contractor relationship.

The classic independent contractor provides their own tools (computer, transportation, etc.), sets their own hours and has multiple clients (just some of the more important factors). Most interns would fail this independent contractor test. Therefore, before deciding to treat an intern as an independent contractor, make sure to analyze their relationship with the company – just having them sign an independent contractor agreement is not enough.

If you do decide to hire interns as independent contractors then here are some best practice tips you should think about. First, provide well defined projects to complete during the internship program and make payment contingent upon completion of those projects (imagine hiring a marketing consultant from oDesk or a lawyer from UpCounsel). Second, do not set regular work hours, but instead let the interns come and go as they please (whether they work at your place of business is a lesser concern). Finally, have your interns provide their own computers and tools. If you have trouble doing this, given the nature of the work for your interns, then you should consider hiring the interns as employees.

Documents you may need:

Hiring Interns as Employees

Most attorneys would recommend hiring an intern as a part-time or full-time employee. Part-time employees generally have limited or no company benefits, such as health benefits, vacation and sick time, paid holidays, and unemployment compensation, unless required by state labor laws and/or company policies. In California, for example it is optional whether to include a part-time employee on the company healthcare plan.  You should have benefits (or lack thereof) clearly spelled out in the offer letter and/or company handbook given to any intern.
Documents you may need:

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The Key is Treating Your Interns Well

Every legal problem that typically arises with interns is derived from managers not respecting their interns or not seeing them as valuable assets. Whether you are planning on hiring paid or unpaid interns this summer, remember to make it a fulfilling experience. If you do, you should avoid many of the problems that young companies run into when it comes to interns while simultaneously creating a valuable asset for your company.

Matt Faustman is the co-founder and CEO of UpCounsel, an online marketplace for legal services focused on businesses and startups. Before co-founding UpCounsel, Matt worked as an attorney in Silicon Valley representing startups and technology companies.

About The Author

Matt Wilson

Matt Wilson is Co-Founder of Under30Experiences, a travel company for young people ages 21-35. He is the original Co-founder of Under30CEO (Acquired 2016). Matt is the Host of the Live Different Podcast and has 50+ Five Star iTunes Ratings on Health, Fitness, Business and Travel. He brings a unique, uncensored approach to his interviews and writing. His work is published on Under30CEO.com, Forbes, Inc. Magazine, Huffington Post, Reuters, and many others. Matt hosts yoga and fitness retreats in his free time and buys all his food from an organic farm in the jungle of Costa Rica where he lives. He is a shareholder of the Green Bay Packers.