Interns: Employee or Volunteer
Interns can be terrific additions to a nonprofit’s capacity building journey, but it’s important to clarify whether they are unpaid volunteers or paid employees.
Must a nonprofit pay its interns?
Interns can be volunteers, in which case they are not paid – or – they may be classified as employees, in which case they receive compensation. The choice is at the discretion of the nonprofit. 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.
Unintended consequences of interns
Be aware that 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 obligation to pay the intern at least minimum wage and back taxes. On the other hand, 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. Trainees fall under a special category of employees in federal wage and hour regulations.
Interns and compensation
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). Consequently, 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 in order for their interns to qualify as trainees.
- Ambiguity creates risk. If it is ambiguous whether an intern is an employee or a volunteer there is always a risk that the state or federal department of labor will instead find that the intern is an “employee,” which creates liability for the nonprofit for back wages and penalties for failing to withhold taxes from wages.
- Document status. Whatever the intern’s status it is useful to clarify the status (either unpaid = volunteer or paid = employee) in writing, whether in the offer letter, or a letter confirming the internship, or through other written materials, such as an orientation manual.
- Manage the risk of accidents/injuries to the intern: In some states “volunteers” are not covered by workers’ compensation insurance, so if the intern is injured, volunteer status could prevent him/her from being compensated for injuries. (But if the nonprofit has a “volunteer accident insurance” policy the intern’s medical expenses could be covered by that policy.) It makes sense to let the intern know whether there is insurance coverage upfront instead of delivering the bad news - "You’re not covered" - after an accident!
- Clarify the workplace policies that apply to your interns: Example: It’s common for nonprofits to have a policy that volunteers may be reimbursed for expenses related to the services they provide the nonprofit – will this policy apply to interns? See this checklist for hiring interns.