Is an Intern a Contractor? 3 Simple Ways to Know the Difference
If you’ve ever asked yourself if you can classify an intern as a contractor, you’re not alone. Maybe you’re genuinely in the dark about how to classify certain workers, or maybe you’re tempted to go the contractor route from an overhead perspective. Hello, no taxes or employee benefits.
While the line can feel blurry, the liability falls to you as the employer to get it right. Intern versus contractor is an important distinction you need to know how to make.
So today we are talking interns and contractors… And why, yes, there’s a difference.
Is an intern a contractor?
What is an intern? What is an independent contractor? The first order of business is defining the two, and spotting the differences.
Interns typically come to you with an educational background. And in a specific field of study that’s related to your business. For this reason, working for you is a kind of applied learning. Just in a real-world setting instead of behind a textbook.
Think of an internship as a career development opportunity. Your intern surely is. The Economist tells us that 90 % of American universities require an internship to graduate. So while your intern is interested to learn from the work, it may also be part of their required curriculum.
This can also be a benefit for you to scope out up-and-coming talent who haven’t yet joined the workforce. In fact, according to SHRM more than half of interns are later hired by the business they intern for. An internship program can provide real value. You just have to be sure you’re in compliance and not crossing any lines when setting it up.
On-the-Job Training & Experience
As an employer, you should expect to give guidance and direction to your intern on everything from daily job duties and tasks to be completed, to training and direct supervision.
In other words, intern programs are built out, and controlled, by the employer.
You provide the equipment, the training, and the “what, when, and hows” when it comes to getting the work done.
Trainee over Contractor
Unpaid interns are not classified as independent contractors or as employees.
But if they aren’t either, what are they?
SHRM designates unpaid interns as “trainees.” They are comparable to volunteers, just with a more structured and guided workload. Even though an unpaid intern may not be an employee, there is still an employee-employer relationship that exists. Once that relationship is established, “an intern cannot be classified as an independent contractor.”
Because of this distinction alone, the blurry line between intern and contractor becomes a lot clearer. Even if it’s not the only thing to consider.
An independent contractor is someone who is self-employed. They run their own business (whether a sole proprietor, LLC, etc.) and contract out their services to varying businesses.
This means that a contractor may provide services to you and your business, but they also provide services to the general public. They do not only work for you. If they do, you risk crossing over into employee territory.
No Supervision Required
Unlike an intern (or even an employee) an independent contractor does not need direction or supervision on a project. In fact, according to the IRS, employers can only direct and control the result of the work when working with an independent contractor.
In other words, the what and how is not up to you.
Be careful with this one, because it may be automatic to expect a contractor to be available during your work hours. But you are not actually allowed to require any such thing.
Independent contractors work for themselves. They dictate their own hours and how the work gets done. Requiring otherwise would put them in the employee classification, and you in hot water if you’re still billing them as a contractor.
Another important distinction between intern and contractor is the responsibilities that fall on you as the employer.
Independent contractors are responsible for filing their own taxes (both federal and state). You pay them their service fee and they do the rest. No employer taxes here.
Contractors are also responsible for providing the tools and equipment to get the job done. Unlike an intern or employee, you aren’t required to provide things like a laptop or office supplies. A contractor brings all that to the table.
3 Ways to Tell the Difference
Is there ongoing training? If you provide training and a real-world education experience for a specified period of time (aka the duration of the internship), they may be an intern.
Who controls the time and the work? If you control when they report to work, and what is expected to get done each day, then they may not be a contractor.
How are they paid? If you pay their service fee but no employer taxes, then they may be an independent contractor.
Can a paid intern be an independent contractor?
Still, nope. But they may be an employee.
Paid vs Unpaid Interns
Unpaid interns used to be the norm. It made their classification as such a whole lot more clear-cut. But with a fair amount of shake-ups and changes over the past few years, Knowledge Services says the majority of interns are now classified as employees and are paid as such. Meaning minimum wage laws in your state apply.
For this reason, it’s important not only to differentiate between contractor and intern when looking to onboard a new worker but also between employee and intern.
Misclassifying an intern can subject you to a slew of broken laws including things like – wages, taxes, benefits, and retirement.
Intern vs Employee
The Fair Labor Standards Act (FLSA) does not give a “practical” definition for an employee. But when distinguishing an employee from an intern there are a few things to consider.
According to SHRM, the intern does “not displace regular employees but works under close supervision of existing staff”. They are not replacing employees or employee work.
But if a worker is filling a role that is not currently covered by an employee, then they should not be classified as an intern. In other words, if they are providing work that’s essential to your business function then they are an employee.
Some Final Words on Classification
When it comes to classifying an intern as a contractor the consensus is – no, you cannot.
It’s important to note that we are giving you general guidelines here. There are exceptions to almost every rule, and intern classification is no different. Always seek professional advice when you’re unsure.
If you’re ever unclear SHRM has a few great tests that can help:
Is a worker an intern or an employee?
Is it a legal unpaid internship?
Are they an employee or volunteer?
If you’re interested in setting up your own internship program, hiring your first official employee, or contracting work out, we are here to advise and ensure you are in compliance with all worker laws. Reach out to us at Boss Consulting HR with any question