How To Compensate Startup Interns

Nathan Parcells, InternMatch’s  CMO and Ashley Mosley, InternMatch’s Community Manager collaborated on this post. You can find them managing the student and employer blogs or connecting students with awesome internships via twitter @Wayup.

Crash Course: Startup Internship Compensation

You’ve shipped your first product and users are raving about it. With plans to add more features, it’s time to expand the team by hiring a few interns. Sound like a familiar scenario? It’s one that most startups – whether Venture-backed or bootstrapped – face.  Chances are that when you started your company, someone advised you on how to make hiring decisions for key employees, but they probably didn’t cover much about hiring interns.

From our experience at InternMatch, there’s no one-size-fits-all approach when it comes to hiring and deciding on compensation for interns. Much of it depends on factors like location of the internship, company size, experience and the type of internship position.  For instance, because of their close proximity to tech companies like Google, Facebook and Apple, engineering interns in the Bay area tend to get paid more than interns any place else ($30+ more per hour).  Competing for talent with these companies mean: offering paid internships, selling students on the startup experience and building a unique and engaging internship program.

We cover some of our best practices for hiring and compensating interns below.

Do I HAVE to pay my interns (what does the law say law)?

Recently, there’s been lots of discussion on this subject. Use the Department of Labor’s six-point standard to determine if the law requires you to compensate your intern(s). In most cases it will. Interns at startups tend to take on lots of responsibility. To summarize point 4: any intern who provides value must be paid at least minimum wage.

Click here for a list of minimum wage requirements by state.

How Much Does Top Talent Cost?

If you want to attract top talent to your company and distinguish your internship from competitors, then you should be prepared to compensate interns for their hard work and their time. The chart below gives a few industry averages for various internship roles at startups/tech companies. These averages may vary based on location and student experience, so use your discretion.

Additional reasons to pay students:

• Most top students will have multiple paid internship offers and will likely be able to secure an internship elsewhere if yours doesn’t pay
• Unpaid internships may exclude a lot of top applicants, who need some form of payment, from applying for an internship at your company
• Research has shown that students are more likely to accept full-time employment from companies who paid them during their internship

More than One Way to Compensate

There’s more to an internship offer than just compensation. Make sure to sell the startup experience and the huge educational component to students as well. Such as learning a new coding language and software or the highly talented team of people they will get to work with and have access to.

Most students interested in startup internships, know they have a lot of value to offer – laidback culture, free food, game rooms, networking events, tech talks and the chance to take ownership of exciting projects and product developments (and much more). All of this should be communicated and reiterated to prospective internship hires as you discuss compensation and the benefits of working at your company.

But We’re Bootstrapping and Broke

Don’t have a lot of resources to hire an intern? Some companies use alternatives like:

• Federal Work Study – Students who qualify for financial aide are eligible. Federal and state programs help compensate an intern’s salary, which could land you with a reimbursement of up to 75%.
• Academic Credit – Students aren’t a huge fan of this but as long as you’re providing an educational experience, it seems to be in compliance with the law
• Small Incentives – Try offering interns a small stipend – either weekly or at the end of the internship, reimbursement for travel expenses or gift cards to their favorite stores (Amazon, iTunes and Starbucks tend to be favorites.)

What about offering equity?

This is very hard to defend in a cap table and equity inherently is geared to people who have a long-term commitment to your company – since it incentivizes them to help with the companies long-term value. However, if it’s a tool to get interns to sign on board full-time, this might make sense. Try hard to pay interns with cash, especially until they have proven their worth or solidified their commitment to your company.

In general, internships can be highly rewarding for both students and employers. College students enjoy seeing the immediate impact of their work and companies get to invest in the long – term growth of their team. Most students accept full-time employment offers from their internships. For more information on building a unique internship program, managing, hiring and compensating interns, check out the InternMatch employers internship guides.