We are hiring a summer intern to work for us this summer. Would it be problematic to pay him a stipend as an independent contractor or do we have to put him on the payroll?
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How to pay summer intern - part-time employee or contractor
Answers
To stay out of trouble. Stick with the IRS definitions - Anyone who performs services for you is your employee if you can control what will be done and how it will be done vs. an independent contractor where the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.
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Proformative offers 400+ online business courses with free CPE, many on Hiring &
I agree with Regis. Draft an offer for temporary employment, where it states the limited term of the relationship, confidentiality and non-compete (if applicable). The employee can always file SS-8, which almost certainly will be classified as an employee and the company can/will be liable for his taxes.
Publication 15-A states: "[Misclassification of Employees - Consequences of treating an employee as an independent contractor.] If you classify an employee as an independent contractor and you have no reasonable basis for doing so, you are liable for employment taxes for that worker."
Internal Revenue Service website:
http://www.irs.gov/pub/irs-pdf/p1779.pdf
http://www.irs.gov/taxtopics/tc762.html
Short article:
http://www.forbes.com/sites/robertwood/2012/03/12/failing-to-pay-employment-taxes-means-personal-liability/
I would add that since most internship programs serve as a talent pool for full-time employment of recent graduates, treating them "like employees" sends a positive message; also most employers will give credit for the time period employed as summer internship (although breaks in service) and having them on payroll also makes this process more transparent/trackable.
Adding to the fire:
-If you want them to come to the company picnic, etc; make them employees.
-If there is ever an argument, and they don't have a business license, multiple clients, or work for a firm that supplies contractors, then you'd have a hard time convincing anyone that they were not an employee.
I have one that I'm not doing this way, but...
-They're using their own equipment, in their own facility.
-They're scheduling their time.
-They are self directed (as to how to get it done, etc).
Regis's comment is simple and accurate, and makes it easy to discern.
As this is fairly common in the industry I work in, I've done quite a bit of research on the subject. In addition to federal laws, the state laws governing this subject vary greatly so be sure to check there too if you're going down the internship path.
Since this is about interns, I wrote a blog on what the Department of Labor considers an Internship and what it doesn't as well as overtime, etc.
For the purposes of this discussion, here is the appropriate Fact Sheet:
Fact Sheet #71: Internship Programs Under the Fair Labor Standards Act (FLSA)
http://www.dol.gov/whd/regs/compliance/whdfs71.pdf
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Aha! I was just going to post that same article. It makes clear that not all interns are in fact employees or need to be paid. There is a summer intern program at the company at which I'm currently engaged, and it seems pretty clearly to fall in line with the requirements stated here.
On the other hand, the original question did say "hiring a summer intern," so by virtue of the fact that the term "hire" was used, it seems a different scenario than ours.
Keith,
Most people say "hiring an intern". It is an expression which is wrong and can spell a small nightmare.
Best bet is if they don't get educational credit (you need a letter from the educational institution) then pay them minimum wage. Remember, those getting educational credit can't be there just to get coffee!
Okay, straight up and hot off the presses, we just had a California EDD audit and we got nailed for treating summer interns like contractors. Believe me, it was unintentional, that's just how we have always done it and I didn't think to check on Proformative (mistake). Well, we had to pay the SUI and a penalty for each. That's the only thing we got busted for with scores of employees and even more consultants and contractors. So believe me, just pay as employees and be done with it.
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