Do Internships Pay? Examining the Debate Around Paid vs. Unpaid Internships

Internships serve as a vital bridge from college to career, offering students invaluable opportunities to gain real-world experience, build networks, and develop essential job skills. These experiences are widely used by companies across the United States and are readily replicable. However, the question of whether internships should be paid remains a contentious issue, sparking debate among students, employers, policymakers, and educational institutions. While many internships are paid, unpaid internships are problematic for many reasons.

The Reality of Unpaid Internships

Imagine walking into an office, putting in hours of work, contributing to a company’s success, and at the end of the day, receiving nothing in return. Many interns face this reality every day. The work they do is real - tasks that a paid employee would handle if the interns weren’t there. If a company values an intern’s work enough to assign them responsibilities, it should also value them enough to pay them.

The core issue lies in the inherent unfairness of unpaid internships. Students who take part in paid internships receive more job offers and garner higher starting salaries than those who participate in unpaid internships (NACE 2022 Student Survey, 2022). According to the same 2022 Student Survey, paid interns earned a median starting salary of $62,500 compared to unpaid interns who reported earning a median starting salary of $42,500.

Economic and Social Inequities

Unpaid internships disproportionately benefit those who can afford to work for free, shutting out talented individuals who may be more skilled but cannot forgo an income. College students, who need internships the most, are often financially unstable. They are forced to choose between gaining valuable experience or earning a paycheck-both of which are crucial to their future success.

The reality is that unpaid internships are not just unfair - they reinforce economic and social inequities. According to the National Association of Colleges and Employers, students who take unpaid internships are less likely to receive job offers than their peers in paid positions. This means that unpaid internships do not even guarantee the career boost that many think they do. Furthermore, a Harvard Business Review article argues that the prevalence of unpaid internships allows companies to exploit free labor while continuing to marginalize students from disadvantaged backgrounds.

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NACE research has also found that all college students are not equitably represented in internships (Inequity in Internships, NACE, 2021). White, male, and continuing generation students are disproportionally overrepresented in paid internships. The bifurcation of paid and unpaid internship opportunities causes a disparate impact on student outcomes and furthers systemic inequities. These students then go on to receive more job offers and higher starting salaries, which perpetuates and exacerbates the disparate impact over time.

Undervalued Labor

Beyond the financial strain, unpaid internships can also devalue the contributions of interns. Not compensating interns communicates to them and their organizational colleagues that their contributions are somehow less valuable than the work of paid interns. This undermines the value of hard work and contributes to wage stagnation, to which unpaid internships directly contribute.

The Benefits of Paid Internships

Beyond fairness, paying interns is also strategic for many businesses. Research shows that paid interns are more engaged and more likely to return as full-time employees, reducing recruitment and training costs for businesses. A company that invests in its interns invests in its future success. Offering paid internships builds loyalty and fosters a strong work ethic that enhances a company’s reputation as a fair and ethical employer. As Forbes highlights, more employers are beginning to recognize this and are shifting toward paid internships.

Improved Engagement and Retention

Paid interns are more likely to be happy in their positions than their peers working in unpaid intern roles. One survey found that over 72 percent of paid interns at for-profit companies received job offers after the conclusion of their internships-compared to only 43 percent of their unpaid peers.

Converted interns offer significant additional benefits for employers. These employees are much quicker to onboard and train because they have already gone through many of those processes during their internship. They also stay at their jobs longer after their first year on the job compared to 51.5% of non-intern employees (NACE 2023 Internship & Co-op Report, 2023).

Enhanced Recruitment and Reputation

Pay is a way to attract top talent: Just like candidates for permanent employment, internship candidates are more interested in positions that pay a fair market rate. That means you’ll have more applicants to choose from-and more high-quality applicants-if you choose to pay your interns.

Paying your interns can improve your company reputation. With unemployment approaching record lows, employers need to find ways to stand out in order to recruit top-tier talent. After all, 75% of job seekers consider a company’s reputation before deciding to apply for a job.

Addressing the "Can't Afford to Pay" Argument

Some businesses argue that they “can’t afford” to pay their interns. If we are honest - if A company cannot pay its interns, perhaps it’s not in the financial position to take them on in the first place. Even a small stipend can make a critical difference in supporting interns and ensuring the opportunities are accessible to all students, not just those who can afford to work without pay.

Exploring Funding Options

Policymakers should provide increased financial and other support to smaller, for-profit, and nonprofit organizations for them to provide paid internships. The greatest need for financial support to pay interns resides largely with smaller for-profit companies and nonprofit organizations. This support could take the form, for example, of increased funding support for existing workforce and education legislation programs. NACE also encourages the government agencies that oversee these funding streams to provide detailed guidance to help facilitate this usage along with increased investments to support paid internships. If an employer cannot afford to pay an intern, they could access these various funding streams.

Legal Considerations: The FLSA and the Primary Beneficiary Test

The FLSA requires “for-profit” employers to pay employees for their work. Courts have used the “primary beneficiary test” to determine whether an intern or student is, in fact, an employee under the FLSA. In short, this test allows courts to examine the “economic reality” of the intern-employer relationship to determine which party is the “primary beneficiary” of the relationship. The extent to which the intern and the employer clearly understand that there is no expectation of compensation.

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Courts have described the “primary beneficiary test” as a flexible test, and no single factor is determinative. If analysis of these circumstances reveals that an intern or student is actually an employee, then he or she is entitled to both minimum wage and overtime pay under the FLSA.

Factors in the Primary Beneficiary Test

The Department of Labor Wage and Hour Division, these seven factors determine whether an intern or student is actually an employee under the FLSA:

The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, expressed or implied, suggests 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.

The Role of Policymakers

There is a call to policymakers to address the inherent inequities unpaid internships cause and to work to ensure all internships are paid. We advocate for legislation to eliminate unpaid internships and provide support for employers in converting unpaid internships to paid internships. Congress should pass legislation requiring internships to be paid. Modern legislation is needed to resolve this inconsistency.

The Need for Legislative Action

The Primary Beneficiary Test requires employers to exercise broad discretion and judgment in determining whether interns should be paid. When judgment and discretion are used, mistakes can and will be made, or more troubling, employers will intentionally classify an individual as an unpaid intern simply to save money. Students, institutions of higher education, employers, and the economy will all benefit from interns being paid, and legislation is needed to make it so.

Until legislation exists requiring internships be paid, Congress should immediately pass the Federal Intern Protection Act to extend legal protections to unpaid interns in the federal government. Such legislation to prohibit discrimination against unpaid interns in the private sector as well. These could serve as models for other states and the federal government.

How to Navigate the Internship Landscape

When looking for your next internship opportunity, whether it’s pre- or post-graduation, it’s important to carefully consider which to pursue. There are certain factors that you will want to think about before applying, beyond employer and location of work. Pay close attention to the attributes listed and the filters you can use on Handshake to fine-tune your search. Your first internship experience is just as important as your first time in an entry level position. It’s also a great opportunity to break into the industry or career of your choice. This is your time to be as selective as you like, as it can be easier to be flexible with your first opportunity.

Paid vs. Unpaid: Factors to Consider

Attainability: An unpaid internship will require much less from its prospects than a paid internship. This may be a great option for you if you don’t yet have relevant experiences (yes, some paid internships require previous experience).
Low-Risk Environment: By nature, an unpaid internship allows you the chance to grow and learn about the job and industry without some of the expectations of a paid role.
College Credit: Some internships partner with your career services center to evaluate your experience and potentially award college credit toward graduation. This is an opportunity for students to combine college completion and employment experience.
Financial Situation: Not everyone can afford an unpaid internship if they need a salary to cover their living expenses. This can make these unpaid opportunities hard to manage in addition to your other obligations and responsibilities.

Determining If an Internship Is Paid

Job Description: First, look at the job description to see if there’s any indication of payment.
Online Forums: Former interns sometimes share their experiences on platforms like Reddit and Quora. If you can’t find information about a specific company, you can even ask if the internship is paid anonymously to see if any former interns respond.
Ask During the Interview: During your initial interview, politely ask about the salary by expressing your interest in the role and asking about logistics.

Intern Compensation: Wages vs. Stipends

Most interns must be paid at least the applicable minimum wage for all hours worked. Under very limited circumstances, a company may participate in an unpaid educational internship program. You should make sure you understand applicable federal and state laws, and consult with your legal counsel before rolling out an unpaid internship program. Employers sometimes think of stipends when it comes to interns, and want to provide a weekly stipend rather than regular wages. This arrangement only works in limited circumstances. If your company is participating in an unpaid educational internship program, you may be able to provide an expense reimbursement stipend under limited circumstances, including the following:

If the unpaid educational internship program allows stipends
The program meets all the requirements under applicable federal and state law for the unpaid educational internships
The stipend reimburses expenses (like food or travel) rather than pays for work performed

It’s important to know that a stipend generally cannot be paid in place of regular wages. As mentioned above, paid interns are W-2 employees and are entitled to be paid at least the applicable minimum wage for all hours worked. While you can reimburse a paid intern for food or travel expenses, provided they give you receipts, it's generally not a good idea to provide such reimbursement by way of an upfront flat stipend.

How Much Do Interns Get Paid?

As indicated above, paid interns must be paid at least the applicable minimum wage for all hours worked and overtime wages, if they work overtime. However, you can always pay them more. Whether you pay an intern more than the applicable minimum wage will depend on the business reasons for doing so, including the market, what you can afford, and your assessment of the value of the work the intern will be performing.

Moses Balian, an HR Consultant at Justworks, suggests employers might consider paying interns at least equivalent to the highest minimum wage in the country. Why? The first reason is that no matter where you hire in the country, you won’t have to worry whether you’re meeting the minimum wage requirements. Another reason is that in many major cities, it can be tough to cover living expenses on a lower minimum wage.

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