Douglas Olsen
Whether or not student interns are entitled to pay is a complex issue that varies by country and state. In the US, the Fair Labor Standards Act (FLSA) requires for-profit employers to pay employees for their work, but interns and students may not be considered employees and therefore may not be entitled to minimum wages or overtime pay. In Canada, the labour code does not require student interns to be paid, and any money given by the employer is not connected to the intern's activities. However, some US states, such as California, require that student workers be paid at least 85% of the minimum wage. Additionally, if an internship is set to last for an indefinite period or if the intern is entitled to a paid job at the end of their internship, they are more likely to be considered an employee and thus entitled to pay.
| Characteristics | Values |
|---|---|
| Student interns considered employees | If the internship is set to last for an indefinite period, the student intern is likely to be considered an employee. If the student intern is entitled to transition to a full-time position at the end of their internship, they are more likely to be considered an employee. If the internship displaces paid employees, the student intern is more likely to be considered an employee. |
| Student interns not considered employees | If the student intern receives academic credit for the internship, they are not likely to be considered an employee. If the internship is tied to the academic calendar, the student intern is not likely to be considered an employee. If the internship provides significant educational benefits for a limited duration, the student intern is less likely to be considered an employee. |
| Student intern pay | In the US, student interns may not be considered employees under the Fair Labor Standards Act (FLSA) and therefore may not be entitled to minimum wages or overtime pay. However, state laws may impose stricter requirements, and some states require that interns be paid at least the minimum wage. In Canada, student interns are not required to be paid by the Canada Labour Code, but they may still be entitled to certain labour standards protections. |
| Reporting student intern pay | In the US, if a student intern receives a 1099-NEC form, the IRS may assume the income is from self-employment and require self-employment tax. To report the income as miscellaneous, answer all test questions as no. In Canada, student interns can undertake both an unpaid internship and paid employment with the same employer, provided the total hours do not exceed 10 hours per day or 48 hours per week. |
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What You'll Learn
Student interns in Canada
In Canada, student interns are individuals who participate in an internship to fulfil the requirements of an educational program. They are not considered employees, and the activities they perform for an employer are not considered to be work. As such, student interns in Canada are not required to be paid, and any money they receive is not connected to the activities they perform. However, employers are prohibited from treating student interns as if they were not their employees.
The primary purpose of a student internship must be for the intern to gain knowledge and experience. Student interns can undertake an unpaid internship to fulfil the requirements of an educational program and paid employment with the same employer, provided that the total hours of both positions do not exceed 10 hours per day or 48 hours per week. Student interns are also entitled to labour standards protections, including a 30-minute unpaid break during every 5 consecutive hours of work.
The legality of unpaid internships in certain provinces in Canada, such as Ontario, hinges on several factors and must comply with specific legal criteria. For example, in Ontario, unpaid internships are illegal unless they meet certain conditions, such as being approved by a secondary school board or a university.
The topic of unpaid internships in Canada has sparked debates about their legality and ethics. Some argue that they provide an opportunity for students to gain valuable experience and get a foot in the door in their chosen field. On the other hand, critics claim that they favour wealthy students and reinforce the class system, as only those who can afford to work for free can take advantage of these opportunities.
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The Fair Labor Standards Act (US)
The Fair Labor Standards Act (FLSA) requires "for-profit" employers to pay employees for their work. However, interns and students may not be considered "employees" under the FLSA, which means that compensation for their work is not required.
Courts use the "primary beneficiary test" to determine whether an intern or student qualifies as an employee under the FLSA. This test examines the "economic reality" of the intern-employer relationship to determine which party benefits most from it. Seven factors are considered as part of the test:
- The extent to which the intern and employer understand that there is no expectation of compensation.
- The extent to which the internship provides training similar to that given in an educational environment.
- The extent to which the internship is tied to a formal education program.
- The extent to which the internship accommodates the intern's academic commitments.
- The extent to which the internship's duration is limited to the period in which the internship provides beneficial learning.
- The extent to which the intern's work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
- The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.
If, after analyzing these factors, a court determines that an intern or student is an employee, they are entitled to minimum wage and overtime pay under the FLSA. On the other hand, if the analysis confirms that the intern or student is not an employee, they are not entitled to either minimum wage or overtime pay.
It is important to note that the FLSA exempts certain individuals who volunteer for state or local government agencies, non-profit food banks, or humanitarian purposes. Unpaid internships in the public sector and for non-profit charitable organizations are generally permissible when the intern volunteers without expecting compensation.
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Academic credit
The Fair Labor Standards Act (FLSA) addresses the issue of pay for internships, which is largely dictated by the "primary beneficiary test". This test allows courts to examine the "economic reality" of the intern-employer relationship and determine which party benefits the most from the relationship. If the intern is found to be the primary beneficiary, they are not entitled to minimum wage or overtime pay under the FLSA. However, if the intern is found to be an employee, they are entitled to minimum wage and overtime pay.
Some employers require students to receive academic credit as a form of "payment" due to liability issues. This enables the company to demonstrate that the internship is tied to the student's formal education program. However, this places additional financial pressure on students, who often have to pay for the academic credits and complete corresponding coursework.
There is a growing recognition that internships offer invaluable professional learning experiences that bridge the gap between classroom-based theories and real-world applications. As a result, some institutions, such as the School of Human Ecology at the University of Wisconsin-Madison, have made for-credit internships a mandatory component of their curriculum.
While some internships may be unpaid and for academic credit only, it is important to note that receiving academic credit is not considered equivalent to receiving monetary compensation. Academic credit does not address the daily needs of students and may deter talented candidates from applying. Therefore, recruiters and employers should regularly evaluate their intern programs to ensure they are offering fair and competitive opportunities.
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Primary beneficiary test
The classification of student interns as employees or non-employees for the purpose of wage and hour laws is not straightforward. The Fair Labor Standards Act (FLSA) requires ""for-profit" employers to pay employees for their work. However, interns and students may not be considered "employees" under the FLSA, in which case the FLSA does not mandate compensation for their work.
To determine whether an intern or student is an employee under the FLSA, courts in the United States use the "primary beneficiary test". This test allows courts to examine the "economic reality" of the intern-employer relationship to determine which party is the "primary beneficiary". The primary beneficiary test is flexible, and no single factor is determinative. Instead, the unique circumstances of each case must be weighed and balanced.
The primary beneficiary test considers various factors, including but not limited to:
- Whether both the employer and the intern understand that the intern will not be compensated. Any promise of compensation, express or implied, suggests that the intern is an employee.
- Whether the internship provides training similar to that which would be provided in an educational environment, including clinical and other hands-on training.
- Whether the internship results in academic credit or is part of the intern's coursework.
- Whether the internship corresponds with the intern's academic calendar and ends after the intern has gained the educational benefits of the program.
- Whether the work complements, rather than displaces, the work of regular employees, and provides significant educational benefits to the intern.
- Whether the intern is entitled to a paid job at the end of the internship.
It is important to note that even if an intern is not entitled to pay, they may still be entitled to other employment protections, such as protection from discrimination and harassment. Additionally, certain exceptions exist for individuals who volunteer their time for religious, charitable, civic, or humanitarian purposes to non-profit organizations.
In the context of hobby pay, it is worth considering that if the internship was undertaken for educational purposes, with no intention to earn a profit, and was not expected to lead to regular employment, the income could be classified as hobby income. However, this argument may be weak, and the IRS may still consider it self-employment income, resulting in self-employment tax implications.
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State laws
It's important to note that the classification of income as hobby pay or earned income has significant implications for tax purposes, and the specific rules and regulations can vary across different states. Here is a state-by-state breakdown of some of the key considerations regarding student intern pay:
In California, for example, the treatment of intern pay is governed by the California Labor Code and the Fair Labor Standards Act (FLSA). If an internship satisfies certain criteria, such as providing training similar to that offered in an educational environment, and if the intern is not necessarily entitled to a job at the conclusion of the internship, then the position may be considered unpaid. However, if an intern performs work that provides immediate advantage to the employer, they may be classified as an employee and thus entitled to minimum wage.
The rules are somewhat different in New York State. According to the New York State Department of Labor, interns who meet specific criteria, such as receiving training and performing work that provides benefit to the employer, are considered employees and must be paid at least the minimum wage. This is a stricter approach compared to some other states, and it emphasizes the educational aspect of internships while also ensuring that interns are fairly compensated for their work.
Texas, on the other hand, follows the FLSA guidelines, which state that interns are generally considered employees and must be paid at least minimum wage if their work provides direct benefit to the employer. This determination is based on the "primary beneficiary test," which assesses whether the intern or the employer derives more benefits from the relationship. If the intern is deemed to be the primary beneficiary, then they may not need to be paid.
In contrast, states like Illinois and Pennsylvania have specific laws that provide more leniency for unpaid internships. In Illinois, for instance, unpaid internships are allowed as long as the intern receives college credit for their work and the internship provides them with beneficial learning experiences. Pennsylvania has similar criteria, emphasizing that the internship must be tied to an educational program and provide meaningful training to qualify as unpaid.
It's important to remember that these are general overviews, and specific circumstances can vary from state to state. Each state may have unique nuances in their labor laws, so it's always advisable to consult local regulations or seek expert advice to ensure compliance with the applicable laws governing intern pay.
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Frequently asked questions
Student interns are not always paid and may be unpaid if they are fulfilling educational program requirements. In the US, students are not considered employees if they receive college credit in exchange for real-life situational experience. In Canada, student interns are not required to be paid under the Canada Labour Code, and any money given to them is not connected to the activities they perform.
Paid internships can attract top talent, increase motivation, enhance company reputation, provide greater legal certainty, and reduce turnover.
There is no federal mandate for minimum pay for interns in the US, but some states, like California, require that workers be paid at least the minimum wage. In Canada, student interns must be paid at least the minimum wage.
There is no legal requirement to provide holiday pay to interns, whether paid or unpaid. However, some employers may choose to offer holiday pay to paid interns as a matter of company policy.
Courts in the US use the "primary beneficiary test" to determine whether an intern is an employee. This includes examining whether the internship is tied to the intern's formal education program, whether there is an expectation of compensation, and whether the internship provides training similar to an educational environment.
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