Those “Interns” in your Startup may be entitled to a Pay Day…

- October 31, 2012 3 MIN READ


When I first started Shoe String, I had a journo intern Derya – it was great and such a help when I was finding my feet. Her internship was legit, went for a set amount of time and consisted of filling out paperwork, doing performance reports etc through Sydney University.

It is becoming a trend in the startup scene to “get an intern” – but there is a definite misconception out there between someone working for free and an internship, which by definition is basically an educational program in which majority of the benefit should go to the intern NOT the company they are working for.

I am not writing this post to be a wet blanket, I know HEAPS of startups that have a lot of interns working with them right now, in fact I was looking around to get some to join our team in 2013. Today I heard of a situation where an intern was claiming money from a business, and by law, it is very likely that they are entitled to it – through the simple act of the owner of that business assigning a task and giving a deadline – something which in the laws eyes is seen as an exchange between a boss and an employee.

In April this year The Fair Work Ombudsman announced that a study and report would be conducted around this type of “free work” which is still going at the moment. I will be approaching his office this week to see if in the coming weeks we can get him on Eagle Waves Radio to discuss the issue in depth so that startups know where they stand and are not caught out.

I will also be talking to universities look at what we can do to make sure that Startups are considered for internships in their institutions.

In the meantime, here is information from the Fair Work fact sheet around Work Experience and Internships:

Work experience & internships

Unpaid work experience placements and internships that don’t meet the definition of a vocational placement can be lawful in some instances. To be lawful, businesses need to ensure that the intern or work experience participant is not an employee.

One key issue in determining whether an employment contract has been formed is whether the parties intended to create a legally binding employment relationship.

When assessing whether the parties intended to form a legally binding employment relationship some key indicators would be:

  • Purpose of the arrangement. Was it to provide work experience to the person or was it to get the person to do work to assist with the business outputs and productivity?
  • Length of time. Generally, the longer the period of placement, the more likely the person is an employee
  • The person’s obligations in the workplace. Although the person may do some productive activities during a placement, they are less likely to be considered an employee if there is no expectation or requirement of productivity in the workplace
  • Who benefits from the arrangement? The main benefit of a genuine work placement or internship should flow to the person doing the placement. If a business is gaining a significant benefit as a result of engaging the person, this may indicate an employment relationship has been formed. Unpaid work experience programs are less likely to involve employment if they are primarily observational
  • Was the placement entered into through a university or vocational training organisation program? If so, then it is unlikely that an employment relationship exists.

Example 1

A local council has advertised an internship program for university students interested in government processes. The internships have been advertised as voluntary and students are allowed to select the hours they spend at the council office over a 2 week period. As the council is careful to ensure that the role is mainly observational, there is no expectation that the students will perform productive work during their internship and the student is gaining the main benefit from the arrangement, it is unlikely to create an employment relationship.

Example 2

Stuart recently completed a Bachelor of Journalism and is looking for work as a journalist. Stuart responds to an advertisement to write for his local paper on a full-time basis for 3 months as an ‘unpaid intern’ to try and gain experience and increase his chances of employment. Since
Stuart had completed his degree and the placement was not a requirement of his course, it cannot be considered a vocational placement under the FW Act. The paper advises Stuart that he will be given specific tasks and deadlines to complete that will assist in the production of the paper and that this productive activity will take up the majority of his time. This suggests Stuart may have been engaged as an employee and entitled to remuneration.

If Stuart mainly observed how the newspaper operated for a few hours a week over 2 weeks and there was no expectation of productive work for the business, it is unlikely that he would be considered an employee. 

Whether or not an employment relationship exists depends on the specific circumstances and any agreement reached between those concerned. Educational institutions and businesses should seek professional advice from their solicitor, chamber of commerce or industry association before entering into any such arrangement.