Can I hire an unpaid intern?
Takeaway: Legally, the answer is almost always no; the Department of Labor has a strict, multi-factor test for unpaid internships, and any intern doing real, productive work for your startup is legally an employee who must be paid minimum wage.
For a cash-strapped startup, the idea of bringing on a bright, ambitious, and unpaid intern can seem like a perfect solution. The intern gets valuable experience, and the company gets much-needed help without impacting its burn rate. This arrangement, however, is a major legal and ethical trap.
The U.S. Department of Labor has an incredibly high bar for a truly "unpaid" internship. While the rules have evolved, the core principle remains the same: an internship must be for the primary benefit of the intern, not the company. If the company is the primary beneficiary of the intern's labor, that intern is legally an employee and must be paid.
The "Primary Beneficiary" Test
To determine if an internship can be legally unpaid, courts and regulators use a flexible, seven-factor "primary beneficiary" test. There is no single deciding factor, but if your internship program does not satisfy the majority of these conditions, you are at high risk of a labor law violation.
Clear Expectation of No Compensation: Both the company and the intern must clearly understand upfront that the position is unpaid.
Training Similar to an Educational Environment: The internship must provide training that is comparable to what the intern would receive in an educational setting.
Connection to a Formal Education Program: The internship should be formally integrated with the intern's education, such as through a university program where they receive academic credit.
Accommodates the Academic Calendar: The internship's schedule must be structured around the intern's academic commitments.
Limited Duration: The internship must be for a fixed, limited period, providing beneficial learning for that duration. It cannot be an indefinite, ongoing role.
The Intern's Work Complements, Not Displaces, Paid Work: This is the most critical test for startups. The intern's work should supplement the work of paid employees, not displace it. If you are using an intern to do work that you would otherwise have to hire a paid employee for, that intern is an employee.
No Entitlement to a Paid Job: Both parties must agree that the internship does not guarantee a paid job at its conclusion.
Why Most Startup Internships Fail the Test
In the "all-hands-on-deck" environment of an early-stage startup, interns are almost never just observing. They are put to work on real, mission-critical tasks: writing code, conducting market research, managing social media. This work directly benefits the company and almost always displaces the need for a paid employee.
The safest, simplest, and most ethical path is to pay your interns. By paying them at least the applicable state and local minimum wage, you avoid all the legal ambiguity and risk associated with the "primary beneficiary" test. It demonstrates that you value their work and their contribution to your company, and it ensures you are building your business on a foundation of compliant and ethical labor practices.
Disclaimer: This post is for general informational purposes only and does not constitute legal, tax, or financial advice. Reading or relying on this content does not create an attorney–client relationship. Every startup’s situation is unique, and you should consult qualified legal or tax professionals before making decisions that may affect your business.