Operating an internship program is a great way for a business to not only help prepare the next generation of professionals for successful careers, but also to provide newly trained talent with an insider introduction to the company. If your company has an internship program or plans to set one up, it’s important to consider not only how to properly pay interns, but also when and how benefits should be made available to interns.
Your guide for the process of hiring interns legally.
Paid Interns Are Employees
Are interns eligible for employee benefits? The definitive answer is that it depends. The U.S. Department of Labor (DOL) regulations specify that most interns must be paid — there are very few circumstances under which unpaid internships can be lawful. This means that most interns are, in fact, employees. There is not a separate set of employment rules for interns. As a result, employers may be required to offer certain benefits to interns in some circumstances.
Mandated Benefits in the Context of Interns
Businesses are required to comply with applicable employment laws and regulations for all of their employees, including interns. This means that employers are obligated to offer benefits to interns when the parameters of the internship correspond with the circumstances under which benefits are mandated under federal, state, or local law.
Health Insurance for Interns
If your company has 50 or more employees, the Patient Protection and Affordable Care Act (PPACA, also known as ACA) may require your company to offer health insurance to interns. This is based on how long your internships are and how many hours interns work each week.
Under the PPACA, employees who work an average of 30 hours per week must be allowed to enroll in health insurance no later than their 90th day of employment.
What does this mean for your internship program? If your internships last 90+ days, you have interns who work 30+ hours per week, and the PPACA applies to your company, then you’ll need to make health coverage available to eligible interns.
If your company would prefer not to offer health insurance to interns, then you’ll want to structure the internship program so that it lasts fewer than 90 days or that interns work less than 30 hours per week.
If your company has fewer than 50 employees, then the PPACA may not apply to your business. In that case, your own policies determine the circumstances under which group health insurance benefits are offered to employees.
Retirement Savings for Interns
If your company offers a qualified retirement plan, such as a 401(k), 403(b), or Simple IRA, then any employees who work at least 1,000 hours within a 12-month period must be allowed to participate in the plan via the same term and conditions of any other employees. This is necessary for Employee Retirement Income Security Act (ERISA) compliance purposes.
If you have any interns whose work with your company crosses over the 1,000-hour mark, then they must be allowed to enroll in your company’s retirement plan with the same employer match provided to all other employees.
If the same intern works with your company for more than one semester within a one year period, they could easily cross the 1,000-hour mark that will make them eligible to participate in your retirement program.
If your company isn’t prepared to allow interns to participate in its retirement plan, you’ll need to establish program parameters that prevent interns from reaching the 1,000-hour threshold.
Your plan document will dictate whether there is any hours of service requirement on retirement plan eligibility and participation.
It’s not unusual for companies to hire former interns as part-time (or even full-time) team members after their internship. It’s important to be aware that all of the hours they worked for your company count toward their 1,000 hours. Don’t neglect to consider their intern hours when determining eligibility.
Mandatory Leave for Interns
The federal government does not require U.S. employers to provide employees with paid time off from work, but many states and municipalities do. If you have interns working in a location where paid leave is required, they’ll need to accrue mandatory leave in the same manner as any other employee who works in that state or municipality.
The most common requirement is sick leave — no U.S. states require paid vacation time. A few states require parental leave above and beyond what is required under the federal Family Medical Leave Act (FMLA). For example:
New York State employers must provide employees with either 40 or 56 hours of paid sick leave per year, depending on company size. Employees are eligible to begin taking accrued leave immediately upon hire.
California employers must provide employees with 24 hours of sick leave per year. Employees must be eligible to take that leave by their 90th day of employment with the company.
It’s important to be aware of and comply with leave laws by state and municipality in any state where your company has employees (including interns) working. This is a particularly important consideration if your company has a remote internship program that could lead to hiring in a new state.
Non-mandated Benefits and Interns
Most companies offer a variety of employee benefits programs beyond what the law requires (such as vision, dental, or life insurance). For benefits like these, employers are free to set their own policies. Your company should have clear policies that specify which types of positions are benefits-eligible and which are not. These policies must, of course, be non-discriminatory.
A business that expects to bring in employees for a set period of time, as is the case with interns, may find it beneficial to classify some jobs as “regular” positions and some jobs as “temporary” positions in order to help clarify the distinction between benefits eligible and ineligible positions.
This type of distinction allows an employer to develop a policy indicating that regular full-time and/or regular part-time positions are benefits eligible, but that positions classified as temporary are not.
Your policy will need to clearly specify which types of jobs will be classified as temporary. This classification usually includes roles like interns, seasonal workers, and project-specific employees.
It’s important to note that this type of policy does not impact eligibility for mandated benefits. PPACA requirements, ERISA requirements, and state/municipal leave requirements apply across the board, regardless of how the employer classifies the status of positions. Additionally, it is important to ensure that all internal policies are in line with applicable benefit plan documents.
Building a Solid Internship Program
From a benefits perspective, it’s important to realize that interns are employees who are brought in and paid to participate in a structured, mutually beneficial learning experience for a set period of time or number of hours. Build your internship program so that it will meet the needs of the interns you hire within the company’s preferences for providing benefits, while also being in compliance with all applicable employment law requirements. Think through all of the variables and put a sound structure in place so that you’ll be able to focus on best practices for leading interns as your program moves forward.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.