Why Are Companies Still Offering Unpaid Internships?

A robust internship program is a long-term investment. Don’t cut corners.

Written by Sunny Betz
Published on Oct. 20, 2021
Why Are Companies Still Offering Unpaid Internships?

For the past few years, there’s been a talent crunch in tech. There are more companies vying for candidates than there are people to fill roles. Seasoned tech pros are able to take their talents to the highest bidder, so many companies have turned their focus toward training the next generation of tech talent. If companies want to build more sustainable teams and have a shot at a more stable future, they need to create exciting internship programs that attract students interested in a tech career.

So why are so many of these internships unpaid?

This is a question that Samantha Strube, head of people at Indianapolis-based environmental compliance software company Encamp, has been asking for a while. The Arizona-based HR leader has worked in South Korea, Germany, Poland and China. The goal of internships in every place she’s worked has been similar: To foster tech talent and to build stronger teams.

“From my experience in most other countries around the world, internships are a formal part of the education process,” she said. “In Germany, they are formalized in association with local education partners, and place a really strong emphasis on full-time conversion.”

Why Unpaid Internships Should End

  • They can damage your reputation as an employer
  • They’re a short-term solution, but not a long-term investment
  • They can put you on the hook for legal repercussions
  • You’re less likely to build loyalty if you don’t pay your interns
  • They keep marginalized and working class people out of tech jobs

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However, there are still tons of companies that expect their interns to work for little to no money — in the U.S. alone, over 40 percent of interns aren’t paid for their work. While many employers hire their interns into full-time positions, there are just as many companies that think they can’t afford to pay their interns, or at worst, view them as a free labor source.

In Strube’s eyes, companies that rely on an unpaid internship model can’t expect to convert those interns to full-time employees. “When we really think about reaching full-time employment as a goal, why are we not going to pay people that are talented and will drive the results that we need?” she said. “Paying your interns really only goes to legitimize that partnership. It tells your intern that you’re going to take care of them, and that you really want to see a future with them.”

Internship programs are an exciting way to foster a new generation of tech talent. When done right, and compensated fairly, they can put interns on the path toward long and successful careers. But if they’re done wrong, they can shut people out of tech careers, or at worst discourage people from pursuing their dreams entirely. If tech companies want to adapt to the changing times, they’ll have to get rid of unpaid internships for good.

“Managers, interns and employees are all literally on the same team, but somehow we’ve gotten to a place where it feels like everyone is against each other,” said Danielle Boris, founder and CEO of New York-based HR tech company ConnectFor. “No one likes to be treated like a machine. Treat people like humans, because we’re all on the same team.”

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Short-Term Savings Hurt Long-Term ROI

Unpaid internship programs might seem like a win-win: it provides interns with industry experience at no cost. But focusing on the short-term rewards of unpaid internships distracts companies from the long term, and can end up costing them more than they save. 

“There’s an operational overhead when it comes to running a successful internship program,” said Strube. “You can’t lose sight of the impact you want interns to have on your business. What is the return on investment? If that is not an obvious or immediate answer, the program is a waste.”

“Why would you not try to create a structure that helps feed talent into where you need it?” 

Not paying interns hurts companies in the long run — it shows that the company doesn’t feel their talent is worth investing in. A 2019 survey from the National Association of Colleges and Employers showed that interns who took unpaid opportunities were around 34 percent less likely to land full-time employment than paid interns. By providing interns with adequate compensation, they’ll be more loyal, passionate and enthusiastic about the work. Plus, you’ll have a hand in creating and inspiring the next generation of tech workers.

“There’s a war on talent,” Strube said. “Why would you not try to create a structure that helps feed talent into where you need it?” 

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Unpaid Internships Can Be a Legal Risk

While tech giants can afford to pay interns fair wages, smaller companies or newer startups don’t have the same funds. But that doesn’t make it ethical for them to offer unpaid internships — and it can put them in hot water. 

“The U.S. Department of Labor is pretty strict about the use of unpaid internships,” said Susan Lorenc, legal partner at the Chicago office of Thompson Coburn LLP. “They don’t want to have all these wide-eyed college or high school students with big dreams to be taken advantage of because they’re not being paid.”

“If the employer is the ‘primary beneficiary,’ the intern should be paid.”

As a general rule, internship programs should educate interns about the industry and provide real experience. The Department of Labor watches to make sure programs aren’t just handing out busy work, Lorenc said. Employment courts test out internship programs to determine whether interns are performing the same tasks as full-time employees without the same benefits. “In short, this test allows courts to examine the ‘economic reality’ of the intern-employer relationship to determine which party is the ‘primary beneficiary’ of the relationship,” Lorenc said. “If the employer is the ‘primary beneficiary,’ the intern should be paid.”

Compensation means a few different things when it comes to internships. College credit, tuition reimbursement, and program stipends are alternative forms of compensation that companies can argue meet the requirements. But it’s the responsibility of companies to keep up to date with federal and state employment guidelines. If an employer skirts these guidelines, they could be on the hook for unpaid wage claims that far exceed whatever they’d hoped to save on paychecks. 

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Paid Internships Attract Diverse Talent

Of course, there are interns who are willing to work for companies without pay. But many people can’t take on a commitment of 15 to 20 hours per week of unpaid work. 

Companies that don’t pay interns are limiting their candidate pool and exacerbating the lack of diversity in the tech industry. Without diverse teams and companies that provide equal opportunities, it is more difficult for marginalized people to move forward in their tech careers.

“If you don’t have diverse talent in that room, you’re missing out on everyone’s experiences.”

“When people have the option to take a job in their ideal future industry, or a job that pays the bills, they’re going to have to take the paid option, whether or not that supports their educational background,” said Strube. Additionally, a recent study from the National Association of College and Employers found that compensation inequality perpetuates structural racism. White students are more likely to be paid interns while African-American students are more likely to be unpaid interns. 

“Companies now are really fighting to be creative and innovative,” said Boris. “But if you don’t have diverse talent in that room, you're missing out on everyone’s experiences. You’re missing out on innovation and creativity within your organization.”

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Consider Your Reputation as an Employer

You may only hire an intern for two or three months, but their impact on your company lasts much longer, even if they don’t become a full-time employee. Those former interns are going to share their experiences — good or bad — with other potential job applicants. If their time was negative that’s discouraging to future interns and job candidates. 

“At the end of the day, these interns talk, and stuff can spread like wildfire,” said Strube. “If you’re not equitable for them, their only conclusion is that you’re not gonna be equitable across the board as well.”

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Value All Your Employees

There are many ways that unpaid internships can negatively affect a company or put it at risk. Interns contribute to the company’s success, and so they deserve to be recognized and compensated fairly.

“People want to see that what they do creates value. That they’re there for a purpose, and they’re not just a cog in a wheel,” said Strube. “When you’re not paying those individuals for the work they’re doing, that is ultimately the message that you’re sending. I believe that’s a very damaging message to send.”

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