Interns can be terrific additions to a nonprofit’s capacity building journey, but it’s important to clarify whether interns are unpaid volunteers or paid employees. If your nonprofit considers its interns "volunteers" but pays them a "stipend," there could be unintended negative consequences. The stipend may cause the Department of Labor to classify the intern as an employee, creating the risk that the nonprofit could owe back wages (to pay the intern at least minimum wage) and back taxes. On the other hand, if your nonprofit is following the wage regulations closely, it may be appropriate to treat the intern as a "trainee" -- relieving the nonprofit of paying minimum wage, but raising the need to document carefully how the internship primarily benefits the intern -- not the nonprofit.
A stipend is compensation for services provided to the nonprofit. Those who perform work in exchange for compensation are either employees or independent contractors, and their compensation and tax withholdings are regulated by the Department of Labor (federal and state).
If a nonprofit provides a "stipend" to a "volunteer" intern – that is sending a mixed message to the Department of Labor. While there are some exceptions, most employees must receive minimum wage in accordance with federal and state law. One exception under federal Department of Labor rules is for trainees, who, assuming they qualify, do not have to be paid minimum wage (and thus may be unpaid or receive a "stipend" that amounts to less than minimum wage).
To be considered a "trainee" the internship must primarily benefit the intern – not the employer. The requirements are described in Department of Labor Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act. (While written primarily as guidance for for-profit business concerns, the Fact Sheet also applies to nonprofit workplaces that pay interns.) Nonprofits that pay interns a stipend below minimum wage should be familiar with this Fact Sheet and document how their internship program satisfies the criteria so that the intern can be classified as a trainee. Also note that federal wage laws also require employers that pay over $600 annually in compensation to independent contractors must file an IRS Form 1099.
When interns are unpaid, they are volunteers but it’s a good idea to clarify the interns’ non-employee status in writing at the beginning of their summer tenure.
Ambiguity creates risk: If it is ambiguous whether an intern is an employee or a volunteer there is always a risk that the nonprofit could be liable for back wages and penalties for failing to withhold taxes from wages. Know your state’s laws governing wages and hours of work, and determine whether your interns fall under the definition of "volunteer" or "employee" in your state.
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