by LaDonna M. Lusher and Christina Isnardi
Every year, thousands of aspiring young professionals find work through internship programs hoping to gain valuable experience and meet potential contacts for future employment. Many of these internships are unpaid and offered by employers seeking to benefit from the labor of bright and talented workers at little to no cost. These potential employers assume that offering unpaid internships will be a real money-saver, however, paying interns can save even more in the long-term. Here are three reasons why it pays to pay interns.
Avoid Expensive Litigation Costs
Employers who pay interns below minimum wage may expose their for-profit business to unpaid wage violations that could end in pricey lawsuits. In order for a for-profit employer to legally host an intern who is unpaid, the internship must meet all six criteria in this strict set of guidelines from the U.S. Department of Labor1:
- The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
- The internship experience is for the benefit of the intern;
- The intern does not displace regular employees, but works under close supervision of existing staff;
- The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
- The intern is not necessarily entitled to a job at the conclusion of the internship; and
- The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.
Although these guidelines are subject to interpretation, two overall themes are quite clear: the internship must be for the benefit of the intern – not the employer, and the intern cannot take the place of paid employees.
Currently, over 40 unpaid internship lawsuits have been filed in the U.S., and the number continues to climb. Lawsuits brought under federal law include unpaid interns who worked for their employer within the last three years since the lawsuit was filed. In the state of New York, the statute of limitations extends back six years. Defending against an unpaid wage lawsuit can be time-consuming and costly—not only to a company’s finances, but also to its reputation. These risks make it more cost-effective to pay interns at least a minimum hourly wage than to defend against costly litigation that can take years to resolve.
Receive Short-Term Value: More Qualified, Valuable Workers
Putting the law aside, compensating interns comes with other benefits that add value to a company. With paid intern listings, firms will likely attract more qualified intern candidates. In fact, paid internship postings attract 2.5 times the number of applicants2, which allow employers greater selectivity in choosing the best candidate for the position. Studies have shown that simply paying a minimum hourly wage in fields like marketing, communications, and public relations can attract the top 25% of students, while paying $12 or more per hour can attract the top 5% of students.3 And finding the best candidate could really pay off—Nathan Parcells, co-founder of InternMatch, estimates that hiring the right intern could add $50,000 to your company.4
Receive Long-Term Value: Higher Worker Retention Rates
Along with receiving short term value from hiring the most qualified and capable interns, companies with paid internships have a significantly higher chance of retaining their interns as future employees. A study by the National Association of Colleges and Employers found that almost 40% of employers reported a higher five-year retention rate among employees they hired from their paid internship programs.5 Moreover, according to Management Review, employers save $15,000 in training, hiring, and turnover costs for each employee they hire from their intern pool.6
Paying minimum wage for a typical 10-week full-time intern costs employers around $3,000. This is a modest amount when compared to the potential costs of expensive litigation, and the value the company could receive by retaining more qualified workers. In any event, perhaps the most significant reason for companies to offer paid internships is that, if the interns are paid a wage, they can perform any work the employer needs, including work that benefits only their employer.