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You’ve just signed a contract with a new intern who will be working in your startup. It’s important founders understand that it is the relationship between the business and worker that defines whether they are an intern or employee, and not the contract they have signed. This article looks at situations where interns will be considered to be employees and what you need to know during the onboarding process.

What is the Purpose of the Internship?

If your internship agreement states that they have an obligation to work or provide things for your business, then this may point to an intention to create a legally binding relationship with the intern. Remember that the primary benefit derived from the internship should flow to the individual, not the business. An internship’s primary function should be to provide a genuine opportunity for the intern to observe and learn. 

Will You Pay Your Intern?

Does your intern expect to be paid? Sometimes, businesses provide interns with reimbursements or a stipend (e.g. for travel or lunch). But your startup should exercise care and ensure any payments are not comparable to wages. Payments comparable to wages are ones that are usually paid on a regular basis and are calculated with reference to time or hours worked. They can also include large lump sum payments and allowances that far exceed the expenses incurred.

What is the Duration of the Internship?

We commonly speak with startups that misunderstand an internship’s primary function is for the intern to derive benefit through observing and learning from others in the business rather than directly contributing to its productivity. Parties should agree on the internship’s length at the outset (4-12 weeks for example) rather than an indefinite placement.

Do You Have an Internship Agreement?

Do you have an internship agreement setting out your relationship with the intern (their role, the obligations on both parties)? Founders should take care and avoid the trap of falling into an informal intern agreement. Ensure that you have an internship agreement template in place so that when the intern starts, you can fill out their role, learning aims and both parties’ obligations. If it is a vocational placement, ensure that both parties understand what requirements (if any) they must satisfy. Employers should also remember that they have health and safety obligations to unpaid interns.

What are the Consequences for Mischaracterising a Relationship?

If you are found to have engaged an intern, but the relationship is, in fact, employee-employer, you will be liable for back pay and other employee entitlements. The startup could also face fines of up to $51,000-$54,000 for each breach of the Fair Work Act. Director/managers of the business also face individual fines for breaches of the Fair Work Act.

Key Takeaways

To help you determine whether your worker is an intern or employee, ask yourself:

  • Is the internship part of a vocational placement?
  • What is the purpose of the arrangement?
  • What is the length of the internship?
  • What are the person’s obligations in the workspace?
  • Who benefits from the arrangement?

If you have any questions or need assistance drafting a volunteer agreement, get in touch with our employment law team on 1300 544 755.


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