Three years ago, Quincy Newspapers Inc., a family-owned chain of newspapers and television stations based in Illinois, had a handful of unpaid interns. There was no internship "program" per se; many business divisions opted not to have unpaid interns because of federal restrictions on such positions.
Under U.S. Department of Labor rules, unpaid interns are trainees who aren’t allowed to provide any services to a for-profit company. They can only observe.
"It just became clear to us that if we were going to get anything of value out of an internship program that it needed to be a paid internship so we could stop worrying about the compliance issue," says Jena Schulz, SPHR, HR director for the Quincy media group. "It wasn’t good for us, and it wasn’t good for the students."
Last year, the company launched a paid internship program complete with a standardized application process and curriculum. In the first two years, the company has hired almost 100 interns at its two newspapers, 12 television stations and two radio stations located in seven states.
Unpaid Internships Raise Legal Risks for Employers
Although unpaid internships have long been seen as a way for students to get needed experience, a rash of legal challenges has cast a shadow over corporate intentions.
A federal judge in New York ruled in June 2013 that Fox Searchlight Pictures Inc. violated minimum-wage and overtime laws by not paying interns who worked on the production of the 2010 movie “Black Swan.” The film company should have paid the two interns because they did the same work as regular employees, provided a benefit to the employer and performed low-level tasks not requiring specialized training, concluded U.S. District Judge William H. Pauley.
Juno Turner, an attorney for the interns in the Fox Searchlight case, says the lawsuit “should be a wake-up call to employers that many [unpaid] internship programs as they are currently structured are probably violating the federal Fair Labor Standards Act” as well as state labor laws.
Camille A. Olson, a Chicago attorney who represents employers on workplace issues, says the case is just one of a number of conflicting decisions on unpaid internships and no clear pattern has emerged.
Yet many employers are choosing to pay interns to avoid potential problems, she says.
“You eliminate all risk—and these lawsuits are very costly—by paying minimum wage,” Olson says.
Among 2013 college graduates who had internships, 48 percent were unpaid, according to a survey by the National Association of Colleges and Employers (NACE). Of those, 38 percent were conducted in the private sector, raising questions as to their legality, says NACE Executive Director Marilyn Mackes.
For-profit employers that offer unpaid internships must meet the U.S. Labor Department’s Wage and Hour Division’s six-prong test:
- The internship must include a significant training component.
- It must be for the intern’s benefit.
- It must not displace paid employees.
- The employer must derive no immediate benefit from the intern’s activities, “and on occasion its operations may actually be impeded.”
- The intern must not be promised a job at the end of the internship.
- The intern and the employer both must understand that the position is unpaid.
For employers that choose unpaid internships, Olson recommends that HR have an open-door policy to give interns an outlet to complain on a timely basis so issues can be resolved without going to court.
Unpaid internships in the public sector or for nonprofit charitable organizations, where the intern volunteers without expecting to be paid, are generally permissible, according to the Labor Department.
In recent months, more than a dozen other lawsuits have been filed against employers, primarily in the entertainment, sports and fashion industries, according to ProPublica, an investigative website tracking the legal challenges
Ross Perlin, author of Intern Nation (Verso, 2011), contends the proliferation of court cases shows that young people “have reached a boiling point. People are starting to think of it as a political issue. They’re understanding that their parents weren’t asked to work for free.”
He also argues that unpaid internships are widening the nation’s already critical economic divide. “What happens to those who can’t afford unpaid internships? It’s narrowing the range of voices we hear,” Perlin says. “You’re narrowing the field to only those people who can afford to work for free.”
Philip Gardner, director of the Collegiate Employment Research Institute at Michigan State University, also sees problems with unpaid internships, but he cautions that eliminating them will hurt a lot of students who need the work experience for their chosen field.
“We’ve got to do it in a way that students don’t get penalized,” Gardner says.
For some employers, interns may simply provide an extra pair of hands. Or perhaps business leaders see the internship program as a way to give back to the community.
But many, like Quincy, realize that well-structured paid internships can be a valuable pipeline for recruiting new talent, especially in highly competitive industries.
"It was important to us to build our own farm team, to build our own bench strength, to give us an opportunity to attract the best and the brightest university students … and introduce them to our company," Schulz says.
So far this year, Quincy has hired five of its former interns as full-time employees. While still in its infancy, the new program is getting rave reviews from business leaders and the HR team.
"We are getting our name out there in the industry and building relationships with students who will come back as part of our future," Schulz says.
About 63 percent of this year’s college graduates held internships during their undergraduate years, according to a National Association of Colleges and Employers (NACE) survey of 9,215 college graduates earlier this year. That’s the highest percentage since the annual student survey was first fielded in 2007.
Internships are becoming more popular because they can give students a competitive advantage when applying for jobs and because there’s been a shift in the way internships are viewed by employers.
Before 2005, "the primary purpose of hiring the intern was to provide work experience to the individual. It wasn’t really seen as a direct recruiting device for a full-time employee," explains Edwin W. Koc, NACE’s director of strategic and foundation research. These days, "the internship is essentially seen as a probationary period in which the student is evaluated as a potential full-time hire and is treated that way."
Employers estimate that 38 percent of new college hires in 2013 consist of the employer’s own interns, according to a NACE survey of 306 large companies.
What’s the Goal?
In many industries, employers wouldn’t be able to meet their staffing needs without hiring a constant stream of new college graduates.
More than 80 percent of large organizations identify talent development as their primary purpose for hiring interns and co-op students, according to a survey last fall by the Collegiate Employment Research Institute at Michigan State University of almost 2,550 full-time recruiters and internship program representatives. But less than 50 percent of small organizations do so. Smaller organizations sponsor internships to develop talent within their industry, even though they might not be able to hire their interns for full-time positions, the survey found.
KPMG LLP, a U.S. audit, tax and advisory services firm, hired more than 1,900 interns this year. The eight-week internships give students "a better understanding of how to apply what they are learning in a practical environment," says Blane Ruschak, KPMG’s director of university relations and recruiting. "It’s also a chance for students to test out our firm’s culture and for us to test them out. It’s a two-way street. Are they the right fit for us, and are we a good fit for them?"
Large companies like KPMG, which has more than 23,000 employees nationwide, can’t afford not to have an internship program. About 80 percent of the company’s interns are rehired either for second internships or as full-time employees, Ruschak says.
"We have to go after the best students for the internships, knowing those students aren’t going to be available a year later, waiting to be hired as full-time," he explains. By then, "they’ve gone with another firm."
In contrast, Bill Parsons, director of learning and organizational development at Sparrow Health Systems in Lansing, Mich., has no plan to hire his interns. He accepts two to four unpaid interns each semester at the request of local universities, including Michigan State University, his alma mater. "I’ve just been trying to pay it forward to the next generation," Parsons says.
While working with interns takes time, Parsons says he benefits, too.
"They ask questions and share observations that force us to clarify why we do what we do and how we know how we do it is effective," he says.
The Intern Search
To find the best students, organizations commonly rely on campus career centers, student chapters of professional groups, social media and employee referrals.
Intel Corp. recruiters use campus events, job fairs and other activities to keep in touch with students. They also participate in advisory boards at the schools and meet key faculty.
For Intel, which hired 1,600 interns this year, that’s not enough. "We have to have a combination of on-campus activities and virtual activities just to get the sheer volume we need," says Coby Schneider, Intel’s campus relations manager.
The HR team’s virtual strategy includes a LinkedIn group called the "Intel Student Lounge," which has more than 10,000 members.
Many companies tailor internships to attract students with specific interests. For example, Intel has five internship programs, including an early-college internship for software engineering students who know the basics.
The application process can be rigorous. Abbott, a Chicago-based health care company, received more than 10,000 applications worldwide for its 170 internships in the U.S. and 500 in other countries.
Planning and implementing Abbott’s program has become a year-round process, partly because of the use of social media and also because students are contacting companies earlier to get a foot in the door before someone else does.
"The ones who are taking the initiative to compete for these jobs are the ones who are more successful" in the working world, says Vildan Stidham, GPHR, divisional vice president of global talent acquisition at Abbott.
A Learning Experience
Students today are looking for internships that will allow them to do real work, not busywork, HR professionals say. By tackling actual work assignments, interns receive a more accurate view of the profession, feel like a valuable member of the team and leave with a favorable impression of the company.
So, many HR professionals work with managers to ensure a quality experience for interns.
As part of their requests for interns, managers at Protective Life Insurance Co. in Birmingham, Ala., must explain the projects they will assign to students.
"It’s important because we don’t want our interns copying and faxing. It’s a way for us to ensure they are doing meaningful work. It also allows us to prioritize," says Melanie McNary, SPHR, vice president and senior HR partner. "This generation [wants] to know where they are going. They want to know what the structure is, and, after they get their assignment, they want the autonomy to get it done."
This year’s 31 interns signed a learning agreement that spells out the tasks they are expected to perform, the deadlines and the learning objectives, McNary says.
"Another way to generate interest [among managers] is for HR to control the budget," she explains. Her HR team controls the budget for 22 of the 31 interns; the other nine are funded by specific departments.
Part of HR’s role also is to make sure managers provide interns with regular feedback.
In addition to day-to-day feedback, KPMG interns are given "review notes" after each assignment so they can fix errors and learn from them. Interns also receive a written review at the end of their eight weeks, Ruschak says.
"One of the things they learn is the ability to accept constructive feedback on their work," he says.
Most large companies have centralized internship programs with intern coordinators who develop consistent processes, materials and programming. Smaller companies may not have a dedicated position to handle this function. Only 40 percent of organizations overall have intern coordinators, according to a Society for Human Resource Management (SHRM) survey of 205 HR professionals from May 2013.
Interns usually go through an orientation process to become familiar with company policies and procedures, just as full-time professionals do.
In addition, KPMG flies its interns to Orlando, Fla., for several days of group training. They hear from the company’s senior leaders and then attend smaller sessions that focus on their specific work function, such as auditing. Such large group events are aimed at showing how interns’ work relates to what others are doing in the company.
Many companies provide educational and social events (including ice cream socials, baseball games and work-related speakers) for interns at their worksites.
"We want to make them feel connected. If they don’t, they ultimately won’t have a good experience," says Intel’s Schneider. The get-togethers also help the HR team maintain contact with the interns and learn of any problems.
"Ultimately, you want interns to have such a great experience that they leave and tell friends and family that your company is a great place to work," Schneider says.
Intel’s HR team recommends that managers designate a buddy for each intern, someone from the same department who can be a resource, she says. The HR team also set up an e-mail account for interns to ask questions.
At the end of the internships, many HR professionals survey interns and their managers to collect ideas for improving the program the next year.
Among this year’s graduating seniors who held internships, 52 percent had paid positions, according to NACE’s student survey. Of those, 73 percent worked for the for-profit, private sector, while 16 percent worked for nonprofits, and 11 percent worked for government agencies.
In the SHRM survey, 86 percent of the HR respondents said their organizations paid interns at the undergraduate level. The average hourly wage was $12.74.
The Michigan State University survey found that average hourly wage ranges vary by major, from $12.43 for interns in the social sciences and humanities to $16.56 for engineering students.
Larger companies such as Intel, KPMG and Abbott pay competitive market rates based on an intern’s skills, position and geographic location. Some 60 percent of Abbott’s U.S. interns also receive housing assistance.
Quincy Newspapers pays its interns $8.25 an hour, which is Illinois’ minimum wage—the highest state minimum wage in the seven states in which it operates. Protective Life Insurance used to pay interns $15 an hour, but budget constraints forced the company to pull back to $12 an hour.
Sometimes, companies are able to offer perks that can sweeten the offer.
Paying interns $12 an hour, sister companies Alaska Airlines and Horizon Air can’t compete against the large salaries offered by other Seattle-area companies such as Microsoft and Google. But they offer flight benefits, which are a hit with college students.
"That’s a big selling point for us. If they fall in love with the world of travel … it makes them more interested in thinking about us for a career," says Keith Dussell, the airlines’ diversity and inclusion specialist.
The HR team also has encouraged managers to allow flexible schedules so interns can work their hours in four days, giving them a long weekend to travel. A new recruiting video shows a pilot intern in Barrow, Alaska, jumping into the Arctic Ocean.
HR professionals commonly measure the success of their internship programs by determining how many former interns they convert to full-time employees, but there are additional ways to measure return on investment.
Intel hired 48 percent of its 2012 interns either for second internships or full-time positions.
Compared with employees who didn’t intern with Intel, the former interns over a five-year period received higher annual performance review ratings, received more promotions and stayed with the company longer. They received more patents, too. The internships also have a positive impact on the company’s diversity efforts.
"Our data clearly points to interns being better-quality investments in the long term," Schneider says.
Some HR professionals can capture the attention of business leaders with more-immediate savings. An intern at Protective Life Insurance last year identified up to $120,000 in potential annual savings by proposing changes to the office printer layout, McNary says.
And companies gain other rewards from internship programs that are harder to measure.
Although Abbott expects to convert about 50 percent of this year’s U.S. interns to full-time employees after they graduate, its program has far broader value to the company, Stidham says.
"The internship program is part of our reputation," she says. "We want to educate and help our young generation."
Dori Meinert is a senior writer for HR Magazine.