Recruiting · Internships

Tax form for interns?

Mike Whitfield Sr. Software Engineer, EPAM, Google

July 13th, 2015

Which tax form do you think is best?  Also, am I obligated to provided healthcare??  I'd just 1099 him since it's simplest to cut him an hourly check that way, but I'll bet his parents would have a thing or two to say about that!

Nathan Parcells VP of Marketing

July 13th, 2015

Hey Mike,

I'm co-founder of a company called Looksharp that has helped thousands of startups hire interns. By the law you should add interns to payroll and pay at least a minimum wage (although there is a new court precedent as of two weeks ago, in California that might change this). 

Outside of legal reasons, I highly recommend paying interns as it dramatically increases quality (which is essential at a fast paced startup), commitment, and it increases chances that an intern converts into a FT hire another huge value for a startup. 

I always tell our interns -- "We are not going to pay you a lot, because we are a startup, but we are going to pay you because we value your work."  I have hired straight A Harvard MBA's, Berkeley english majors to do inbound content creation, and even engineers (although $25/hour is more standard for this role) all at minimum wage. 

To be eligible for a 1099 a contractor must be able to pick their own location and hours, which isn't true for most interns. That said, many internships are done like this and most are not enforced as the DOL usually has bigger fish to fry.

Let me know if you have further questions!

-Nathan 

Eleanor Carman Incoming BLP Sales Associate at LinkedIn

July 13th, 2015

I'm on my 4th internship (all in different states) and have always used a 1099. They've never provided healthcare, which I think is pretty routine, especially because it's shorter term. 

Mike Whitfield Sr. Software Engineer, EPAM, Google

July 14th, 2015

Helpful info's re: location and hours, forgot about that Nathan!

Yea, he's paid.

Bogomil, huh? 

Jessica Thompson Founder, Advisor

July 15th, 2015

Mike, I understand some states also have total pay thresholds in order to require a 1099. With interns just like hourly contractors, I always ask for their W9 at the beginning (then they know it is a REAL job) just in case they end up being rockstars and getting paid enough to merit the 1099. They don't need benefits because like contractors they are not employees. I recommend having them sign an independent contractor agreement to make these expectations clear.

Good info Nathan thanks!

Jessica Thompson Founder, Advisor

July 15th, 2015

Free stuff, swag, extra training and recommendations are good ways to give additional thanks to interns though!

Jessica Thompson Founder, Advisor

July 15th, 2015

Free stuff, swag, extra training and recommendations are good ways to give additional thanks to interns though!

Rochelle Kopp Japanese business culture expert and cross-cultural communications specialist

July 16th, 2015

Nathan, can you tell us more about the new precedent? I had not heard about that. Thanks.

Rochelle Kopp Japanese business culture expert and cross-cultural communications specialist

July 18th, 2015

I think this might have been the precedent Nathan was referring to. http://www.outtengolden.com/employers-have-greater-leeway-on-unpaid-internships-court-rules

Benjamin Olding Co-founder, Board Member at Jana

July 19th, 2015

+1 Nathan

How big is your company in terms of full-time employees?  Possibly over 10, but definitely over 20, keep it strict on the labor laws, if for no other reason than its good discipline.  By 20 employees, you want a strong culture of compliance so it's seamlessly there when you hit 50 or 100 - the cost savings of living in the gray area can't possibly justify the risk of having due diligence take an extra week or two in some future round.  Time kills deals.

A strict interpretation of your question is a W-2.  I've never heard of having to pay benefits for an employee that will work 3-4 months - the issue is paying social security, etc (not healthcare).  Interns can be a separate class of employee with different benefits (I.e. none).

Below that threshold, I can't tell you you can use a 1099 for interns, but I can tell you I did it when we were smaller and there were no consequences I regret...  Simplified things at the time.  In retrospect, wouldn't have been a big deal to have them on a W-2 either.

Pay your interns something.  Get W-9s from all contractors always (put in the contract they must provide it to be paid).  

Don't stress over any of this stuff.  Even if you mess it up, the consequences can't justify this being a source of anxiety for you, especially when you're small enough you have to do it yourself.  The compliance folk who make this into a big deal when you're small are just trying to feel self important.  The compliance folk who are relaxed about this when you are large are incompetent.

Anonymous

July 22nd, 2015

Who you think is an independent contractor could actually be classified as an employee.
Ask yourself this:
  • Does the company control what the worker does and how the worker does his or her job?
  • Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)