Can I Legally Hire Interns or Volunteers at a Startup?

Understanding the Legal Landscape

The Fair Labor Standards Act (FLSA) sets the foundation for determining whether an intern is considered an employee entitled to minimum wage and overtime pay. The key is the “primary beneficiary test,” which examines who benefits more from the internship—the intern or the employer. 

Think of the internship as a college lab course. If your intern is doing experiments that support their education, that’s legal. If they’re mopping up after everyone else, you’ve likely crossed the line into illegal, unpaid labor. If you are the primary beneficiary, the intern is likely deemed an employee, requiring compensation.

Key Factors of the Primary Beneficiary Test

To determine whether an internship is legally unpaid, courts consider several factors. Here’s what you need to evaluate before bringing on an intern:

• Expectation of compensation. Make sure both parties agree upfront that the internship is unpaid. Any promise or even an incentive of payment may suggest there’s an employment relationship and trigger wage obligations.

• Educational training. The experience should mirror classroom learning and be structured primarily around the intern’s academic development, not just fulfilling business needs. For example, an accounting student can assist with improving the bookkeeping process for efficiency. 

• Connection to coursework. Internships tied directly to formal education or plans, such as those offering academic credit or involving school oversight, are more likely to meet legal standards.

• Accommodation of academic commitments. The internship should not conflict with the intern’s academic calendar. Flexibility is key in demonstrating that the position prioritizes education.

• Limited duration. The internship should last only as long as necessary for the intern to benefit from the learning experience, usually a semester or two. Avoid open-ended commitments.

• Complementary work to employees. Interns should support, not replace, your workforce. Their role must be supplemental and closely supervised to maintain a legal boundary. 

• No entitlement to employment. Clarify that a paid job is not guaranteed at the end of the internship. This keeps the arrangement educational and non-transactional.

These factors help determine whether your intern can be legally unpaid. No single factor is decisive, so evaluate the entire context of your internship program.

Why Your State’s Specific Requirements Matter

Federal law is only part of the equation. In Massachusetts, for example, interns who do not receive school credit are generally required to be paid unless they qualify for a narrow “trainee” exemption. It’s essential to research your state’s labor laws or consult a local employment attorney before launching your program.

How to Implement an Internship Program 

If you’ve determined that you want to offer internships, use the following strategies to build a legally sound and educationally rich experience:

• Define clear objectives. Identify what the intern will learn and how this knowledge applies to their academic or career trajectory. A vague or ad hoc internship plan will not meet legal standards.

• Provide structured training. Offer mentorship, shadowing opportunities, and hands-on tasks that reflect real-world applications of their field of study. The internship should feel more like a syllabus than a job description, where your intern walks away with skills, not just time sheets.

• Assign meaningful tasks. Ensure that interns contribute to projects that develop their skills. Avoid assigning duties that are routine, administrative, or better suited for an employee.

• Maintain open communication. Discuss expectations, timelines, supervision, and whether academic credit will be awarded. Transparency up front can help manage legal risk later.

• Document the arrangement. Ensure your written internship agreements clearly outline the educational goals, duration, and how you will supervise the intern. This documentation should prove that the internship is focused on learning.

• Consult legal counsel. Compliance is not a DIY project. A brief call with an employment or business attorney can save you thousands in fines.

Designing your internship program to balance educational benefits for the intern with legal compliance for your startup helps you meet your company’s objectives and the intern’s professional development goals. Bonus: Most colleges and universities have internship programs and guidelines for their students. Contact the coordinator at your local schools.

Alternatives to Unpaid Internships

Due to compliance requirements, paid internships can be more practical and effective. It expands your candidate pool and reduces legal ambiguity. If funding is tight, consider these alternatives:

• Part-time employment. Hire students or entry-level workers for a limited number of hours to manage workload without violating wage laws.

• Work-study partnerships. Team up with colleges that fund part of students’ wages through federal or institutional work-study programs.

• Project-based freelancers. Short-term contractors can provide skilled assistance without the structure and legal complexity of an internship.

While unpaid internships can work in certain contexts, exploring alternative staffing models may save time, money, and legal exposure. Ensure the details of the work requirements are captured in a Partnership Agreement or Independent Contractor Agreement.

Volunteers and Interns in a For-Profit Entity

Many startup founders assume no strings are attached if someone volunteers their time, especially a friend or supporter. But when you’re running a for-profit business, this can lead to serious legal trouble.

Under the FLSA, individuals cannot generally volunteer for a private, for-profit company, no matter how willing they are. Unlike nonprofit or government organizations, for-profit enterprises cannot accept volunteer labor without paying at least minimum wage. 

If someone is contributing time and effort to your venture’s operations, you must:

• Treat them as a paid employee, subject to wage and hour laws

• Hire them as an independent contractor, with proper classification and a contract in place

Ignoring this can lead to wage claims, audits, and lawsuits. When in doubt, assume that volunteers are not allowed in a for-profit startup and explore lawful alternatives instead.

What Happens If You Get It Wrong?

Even well-intentioned startups can misstep. If your intern or “volunteer” is misclassified and you violate internship guidelines for employers, you may be liable for:

• Back pay, including overtime

• Tax and benefit contributions

• Legal fees

• Penalties from the Department of Labor or your state’s labor agency.

A complaint, a job application, or a social media post can trigger wage and hour audits. If you’ve misclassified multiple interns, those costs multiply fast.

Expand Your Workforce with Caution

You’re building more than a business. You’re building culture, credibility, and future hiring pipelines. Structuring your internship program properly shows professionalism, attracts better talent, and avoids the scrutiny of regulators. Invest in doing it right from day one.

Resources:

• U.S. Department of Labor, Fair Labor Standards Act Advisor, link.

• U.S. Department of Labor, Wages and the Fair Labor Standards Act, link.

• Society for Human Resource Management, Beware the Legal Pitfalls of Managing Unpaid Interns (December 2023), link.

• The Able Trust, Employer Internship Guide, link.

• National Association of Colleges and Employers, Best Practices for Internship Programs, link.

• New York Department of Labor, Wage Requirements For Interns In For-Profit Businesses (June 2023), link.