It Pays to Pay: 3 Reasons Why Employers Benefit from Paying Interns

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:

  1. 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;
  2. The internship experience is for the benefit of the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. 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;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. 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.

Work Cited


Bank of America intern drops dead after alleged string of brutal 24-hour shifts

A German student and Bank of America intern dropped dead in London after working a string of around-the-clock shifts. Moritz Erhardt, 21, had been an undergraduate exchange student at Michigan’s Ross School of Business from January through May of this year, officials said. He accepted an internship with a London Bank of America. Erhardt was found dead in his apartment and, according to his flatmate, he had returned home at 6am three days in a row. It has been reported that Bank of America interns regularly work 14 hour days, clocking up to 100 plus hours a week. Erhardt studied at WHU-Otto Beisheim School of Management in Vallendar, Germany. He had previous internships at Morgan Stanley, Corporate Global Investment Banking and Deutsche Bank. “We are all deeply shocked and saddened,” Peter Augustin, a spokesman for the German business school. Full article.

The U.S. Department of Labor has clear rules governing the legality of unpaid internships. According to the U.S. Department of Labor, an unpaid internship is only lawful in the context of an educational training program, when the interns do not perform productive work and the employer derives no benefit. “If the employer would have hired additional employees or required existing staff to work additional hours had the interns not performed the work, then the interns will be viewed as employees and entitled to compensation under the FLSA.”

Unfortunately, in today’s economy, where shareholder value and the bottom line take precedence over everything, companies have found a new way to improve profits—by promising educational opportunities to interns, but using them instead to replace paid employees. At Leeds Brown Law, we believe this is wrong, and will use our experience, knowledge, skill and resources to help you pursue compensation for your efforts.