Key Takeaways

  • Unpaid internships must primarily benefit the intern, not the employer, under Department of Labor (DOL) rules.
  • Employers must follow the primary beneficiary test to determine whether an intern qualifies as unpaid.
  • Violating wage laws with unpaid interns can lead to back pay, penalties, and legal liability.
  • Unpaid internships can offer learning opportunities but may limit accessibility for students from lower-income backgrounds.
  • Employers should provide structured, educational experiences and clear expectations to comply with the Fair Labor Standards Act (FLSA).

What Are Unpaid Internships?

Unpaid internships are nonpaid, nonpermanent work experiences that enable an individual to participate in, and observe, a professional work environment. Intended to teach a young person about a particular industry, unpaid internships are commonly offered to students and others who are just setting out in their career, though there can be some debate as to when an intern should and shouldn't be paid.

What Is the Value?

Internships ought to offer interns substantial learning so they can obtain a greater understanding of a particular industrial sector, job role, and their own skillset. This has become a controversial topic in recent years, with some critiquing unpaid internships as a means for a company to exploit free labor while taking advantage of eager young workers who want to get on the career ladder, whereas others insist that these programs provide valuable experience.

The hiring rate for students is greater for those who participate in paid internships than those who accept an unpaid program. A study by the National Association of Colleges and Employers found that the hiring rate for students with paid internships is 63 percent, as compared to just 37 percent for those with unpaid programs. This is almost the same rate (35 percent) of those who did not participate in an internship in any form.

Intern's Rights

Anyone that is considering an internship should be sure to understand their rights as an intern before the placement begins. This way, they can avoid being taken advantage of, and their expectations are clear from the start.

The Department of Labor has set regulations in order to prevent any exploitation of interns, and these decide whether an internship should be paid. The Fair Labor Standards Act states that internships that qualify as paid positions must pay their interns the minimum wage (at least) for their assistance and services and paid for any overtime work.

Although an unpaid internship may improve a resume, it won't really do anything extra to help an individual to gain employment.

Legal Risks for Employers Offering Unpaid Internships

Employers who misclassify workers as unpaid interns may face serious legal and financial consequences. Under the Fair Labor Standards Act (FLSA), if an intern’s work benefits the employer more than the intern, the individual must be compensated as an employee. Several companies—including Condé Nast, Warner Music Group, and Fox Searchlight—have faced class-action lawsuits for failing to pay interns who performed essential business tasks. These cases illustrate how costly noncompliance can be, resulting in settlements, back pay, and negative publicity.

To minimize risk, employers should:

  • Clearly document how the internship provides training similar to an educational setting.
  • Avoid assigning routine business tasks that replace paid employees.
  • Partner with educational institutions where possible to establish academic credit or supervision.
  • Provide written agreements outlining the internship’s learning objectives, duration, and unpaid status.

Failure to adhere to these standards can lead to Department of Labor audits and potential wage claims.

Six Criteria for Unpaid Internship

There are six points that an employer needs to confirm if an internship can be unpaid.

  • The internship offers similar training to that provided in an educational environment, but in an actual workplace.
  • The program exists for the benefit of the intern.
  • The intern will work closely under the supervision of current staff, but doesn't fill the role of a regular employee.
  • The employer does not receive direct advantage from the intern's activities. In fact, employers may find that their operations are impeded.
  • The intern is not guaranteed a job when the internship ends.
  • Both the employer and interns understand that wages will not be paid to interns for their time within the program.

The Primary Beneficiary Test

While the DOL once relied on a rigid six-part test, today it uses the more flexible primary beneficiary test to determine whether an intern is an employee. This test considers who benefits most from the internship—the intern or the employer. Courts and regulators examine factors such as:

  • The extent to which the internship is tied to an educational program.
  • Whether the intern’s work complements or displaces paid employees.
  • The degree of supervision and mentorship provided by the employer.
  • Whether the intern receives academic credit or formal training.
  • The expectation of compensation or employment after completion.

No single factor controls the outcome; instead, all are weighed together to determine the relationship. When properly structured, unpaid internships can comply with the FLSA if the experience is genuinely educational and non-exploitative.

Opportunity Cost

Receiving minimum wage can be more sustainable than receiving no pay. The U.S. federal minimum wage is $7.25 an hour (slightly less in Georgia and Wyoming at $5.15 depending on the specific role). Though this is low, even minimum wage can go a long way for someone who needs money for college.

Ethical and Equity Concerns with Unpaid Internships

Unpaid internships raise broader ethical and equity concerns. While they can provide valuable exposure, they often exclude students from low- and middle-income backgrounds who cannot afford to work without pay. Studies have shown that these internships perpetuate inequality by favoring those with financial support or family connections.

Additionally, unpaid interns lack benefits such as workers’ compensation coverage, unemployment insurance, and legal protections afforded to employees. Employers and educational institutions must consider these implications and work toward more inclusive internship models—such as offering stipends, academic credit, or hybrid paid-unpaid options—to promote fairness and access.

Cost of Living

According to Time magazine, the cities where most interns want to work are New York, San Francisco, and Los Angeles. Sadly, these are some of the most expensive cities to live in the U.S. People may choose to opt for a paid summer job rather than an internship as they may still be responsible for the rent of temporary housing, but they will likely have more control over choosing a location that has a lower cost of living.

Total Cost

With all things considered, including the earnings that unpaid interns are not receiving, the amount that they have to spend living in expensive cities, and general cost of living, an unpaid internship could set someone back as much as $12,986. Though unpaid internships may lead to a job, as mentioned above, the chances of landing one after graduation is not higher with experience from an unpaid internship.

Best Practices for Structuring Compliant Unpaid Internships

To design a lawful and beneficial unpaid internship program, employers should:

  1. Define Educational Objectives: Ensure that interns gain skills, insights, or exposure not obtainable in a typical job.
  2. Limit Work Hours and Duration: Keep internships short-term and focused on learning outcomes, typically under one academic term.
  3. Provide Mentorship: Assign supervisors who can teach and mentor rather than delegate administrative or routine work.
  4. Clarify Compensation Terms: Communicate clearly—preferably in writing—that the internship is unpaid and does not guarantee employment.
  5. Maintain Documentation: Keep detailed records of intern duties, evaluations, and learning objectives to demonstrate compliance.

These practices not only align with labor laws but also create positive, educational experiences that benefit both parties. Businesses seeking guidance can consult employment attorneys to ensure compliance with federal and state wage laws.

Frequently Asked Questions

  1. Are unpaid internships legal?
    Yes, but only if they meet the primary beneficiary test under the Fair Labor Standards Act. The internship must primarily benefit the intern, not the employer.
  2. Can a for-profit company offer unpaid internships?
    Yes, but stricter scrutiny applies. For-profit companies must demonstrate that the internship is educational and does not replace paid employees.
  3. Do unpaid interns qualify for workers’ compensation or benefits?
    Usually not. Since unpaid interns are not classified as employees, they typically don’t qualify for benefits such as workers’ compensation or unemployment insurance.
  4. What happens if an employer misclassifies an intern?
    The employer could face back wages, fines, and potential legal action for violating wage and hour laws.
  5. How can companies avoid legal issues with unpaid internships?
    They should create structured programs focused on education, maintain transparency, and seek legal review to ensure compliance with FLSA and state labor laws.

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