What Employers Should Know About Internships in the Startup Community

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Table of Contents

• Vocational Placements
• Does An Employment Relationship Exist?
• What Should I Include in My Internship Agreement?
• What if My Intern is Visiting From Overseas?
• Key Takeaways
• Frequently Asked Questions

As startups try to grow on shoestring budgets, unpaid interns are often seen as an easy fix when a company cannot afford to hire more employees. In saying that, it is important that you understand the employment laws that cover internships in Australia. Since failing to comply with these laws can attract fines and liability for back-paying workers, this article explains your obligations towards internships in your startup. 

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Vocational Placements

If an intern is undertaking a “vocational placement”, they are generally not entitled to pay regardless of whether an employment relationship exists. Under the Fair Work Act (FWA), a vocational placement is a placement:

1. that an educational training institution or the intern themselves has arranged; 
2. where there is no entitlement to pay for the work the intern undertakes, such as a contractual obligation; 
3. the intern must complete the placement as a requirement of an education or training course; and
4. the institution delivering the course must approve the placement. 

However, if your unpaid intern is not in a vocational placement and an employment relationship exists, you will breach the law by not paying them for the work completed.  

Does An Employment Relationship Exist?

Whether an employment relationship exists between your startup and the intern depends on whether the work arrangement involves an employment contract. 

An employment contract does not have to be in writing. Instead, it can be a verbal agreement as long as it is clear that:

• both you and the ‘intern’ intended to create a legally binding arrangement;
• the ‘intern’ commits to perform work for the benefit of your startup; and
• you will remunerate the ‘intern’ for performing work. 

In addition to looking at whether an employment contract exists, you should also consider the:

• purpose of the arrangement, i.e. is it for genuine work experience or did you hire the intern to fulfil a job role;
• benefits from the arrangement, i.e. is your intern or your startup the main beneficiary of the arrangement;
• expectations from your intern, i.e. have you set performance targets as you would for paid employees; and 
• duration of the arrangement, i.e. the longer the arrangement lasts, the more likely the intern will be an employee. 

If the arrangement is not a vocational placement and an employment relationship exists, your ‘intern’ is likely entitled to payment.

What Should I Include in My Internship Agreement?

Once you bring on your intern, it is also important to have an intern agreement to establish the relationship between your startup and your intern. As your intern is not an employee, it can be mutually beneficial for both parties if your intern understands what is expected of them in the role. 

The following section explores key terms to include in your internship agreement.

Roles and Obligations

In your agreement, you should address the role and obligations of the intern during the internship and the working hours your startup expects them to complete. The term of the placement should correspond with the placement hours set out in the details of the university or TAFE course.

No Entitlement to Pay

The agreement should also explicitly state that internships are unpaid. However, as a part of the internship agreement, you may consider covering the intern’s travel and food expenses, although this is not necessarily a requirement.

Insurance

The intern agreement will state that your insurance will not cover the intern at your place of work. The relevant university course sometimes covers this insurance, but the intern should confirm this before starting their placement.

Confidentiality and Intellectual Property

Two particularly important areas your agreement should address are confidentiality and intellectual property. Like any other person working in your business, interns have access and are exposed to confidential information, such as:

• client details;
• business know-how; and 
• systems and processes. 

What if My Intern is Visiting From Overseas?

Suppose an international student is completing an internship as a part of their university or educational placement overseas. In that case, they can be considered a non-employee if they comply with the requirements of that particular vocational placement. Make sure you have on file the documentation which sets out the details of the vocational placement in case questions later arise.

Key Takeaways

If you run a startup, it is important to understand your obligations when offering internships. With the increasing competition for work, particularly for students and graduates, there may be even more temptation to bring on unpaid workers eager for experience. If an intern is undertaking a “vocational placement”, they are generally not entitled to pay. However, if your intern is not undertaking a vocational placement and an employment relationship exists, you will likely have to pay your intern. 

Failure to pay your intern accordingly can expose you to fines. For more information about structuring your startup’s internships or graduate programs, our experienced employment lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions