Why I Pay Interns and You Should, Too

While it seems that summer internship season is far away, recruiting events are just around the corner. Every year, around this time, I have a discussion with other CEOs about paying interns: why I do and so should you.

There is a common misconception that it's OK not to pay interns. It's not: in most cases it is technically illegal not to pay an intern. Don't take my word for it, leading law firm Cooley summarized it well just this past summer, covering an affirmation by the Federal appeals court of the tests for unpaid internships in Glatt v. Fox.

[T]he appeals court adopted a new primary beneficiary test, under which an intern is considered an employee only if the employer benefits more from the relationship than the intern.

I am not a lawyer, but let's look at the tests and see what they are. In its opinion, the Court of Appeals set out a list of seven factors that should be considered when deciding the primary beneficiary (quoting from Cooley):

• The extent to which the intern and the employer clearly understand that there is no expectation of compensation, with any promise of compensation, express or implied, suggesting that the intern is an employee—and vice versa.
• The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
• The extent to which the internship is tied to the intern's formal education program by integrated coursework or the receipt of academic credit.
• The extent to which the internship accommodates the intern's academic commitments by corresponding to the academic calendar.
• The extent to which the internship's duration is limited to the period in which the internship provides the intern with 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.

How I read this is: Unless your intern is costing you more than the value you receive from the intern, you should probably pay your intern. Unpaid interns cannot do the work of regular employees. You cannot simply not pay interns for expedience, or because you are a startup. Labor laws are not things that you should break.

This legal reasoning is all well and good, but there are other reasons you should pay interns. Let's start with why you have interns. You should have interns if:

• You want to give back to the community
• You want to develop a strong pipeline of future employees
• You want to temporarily increase the amount of work you accomplish

If this is true, you need to aim for diversity in your internship candidates and interns, just like you would (I hope) in your full time candidates. By not paying your interns, you are, in one step, removing a large portion of the candidates from the pool.

Some students simply cannot afford to work for free.

We often forget about this fact, or come up with bizarre justifications about how interns can hold a second job, etc. However, for many college students, even ones at elite schools, summer is an important time to make income. It's an important time for on the job learning and making connections for future careers, also, but today's bills must be paid.

When you pay your interns, even a small amount, you enable this class of students to apply for your job. You don't know until you interview, but the ideal intern might be one of these students who must earn a paycheck.

The cost of paying an intern in cash is quite small. I have found the training and development cost far outweighs the salary. Even in our time as a cash-strapped startup, we always paid our interns.

Let's assume you pay your interns the California minimum wage of $9 per hour for a 40-hour work week. We find our interns never work more than 10 weeks in the summer (and usually eight or nine). For the entire internship, the cost here is just $3,600, plus payroll taxes. There are no benefits granted to temporary employees, so that cost goes away. According to my research (and ADP), your payroll tax in California should be about 17.15%, so an extra $617.40. Your total cost for one employee for 10 weeks is $4,217.40.

If your startup is about to live or die on this, you're probably doing something else wrong.

If you're breaking labor law to have unpaid interns and you're excluding people from your intern pool by not paying, you are definitely doing something wrong.

At Wallaby, we paid our interns $10 initially and later, up to $15 per hour. It's not an amazing wage, but it enabled people to work for us, gain experience and contribute, instead of taking a job at Trader Joe's. Yes, we did have people turn us down at $15 an hour as well, but salary negotiation was rare. We stated what our wage was, with the caveat that startups cannot afford to pay much, but at least we were paying.

For me, even at a higher rate, our excellent interns have been a great deal. They have worked hard, contributed to our company, and done vital work. Because we have paid them, we didn't have to worry about labor law violations or giving them occasionally uninteresting or less valuable tasks.

I strongly believe that offering pay for your interns, even at minimum wage, will net you better employees and better output.

I'm looking forward to more Wallaby interns in 2016 and paying them well.