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If you’re running a small business in Australia and thinking about bringing on an intern, it’s essential to understand the legal boundary between a genuine learning opportunity and an employment relationship. In Australia, the distinction isn’t always black and white – but getting it right can save your business from costly legal issues down the track. In this guide, we’ll explain what makes an internship genuine, the importance of clear agreements, and the factors that may tip an intern’s status into that of an employee.
The Purpose of an Internship
The very essence of an internship is to provide a learning and observation experience rather than to fill a permanent, productive role within your business. Interns are meant to observe, learn, and develop skills while working under close supervision. Their tasks should generally be focused on their personal development rather than significantly boosting your overall productivity.
For many business owners – especially those operating as a sole trader – it can be tempting to assign interns tasks that directly benefit the business. However, if the duties performed by an intern start to resemble those of a regular employee, there’s a risk that the intern could be classified as an employee under the law.
Payment to Interns: Obligations and Considerations
One of the most frequently asked questions is whether you need to pay your intern. Legally, if an internship is designed primarily as a learning experience, there is no obligation to pay wages. Instead, you might offer a modest stipend or reimburse expenses such as travel or meals. The key point is that any payment should not mimic the wage structure of a regular employment contract.
When an intern receives regular payments based on hours worked or large lump sum amounts, it is a red flag that their role might be more aligned with an employment relationship. The Fair Work Ombudsman has set clear guidelines regarding these distinctions. Ensuring that any payments are structured as reimbursements or contributions to expenses is one way to help maintain compliance.
Internship Duration and Agreements
Setting Clear Expectations
Internships should have a fixed term – a limited, predefined duration – which reinforces that the primary goal is education rather than sustained productivity. A clear internship agreement is essential to set expectations for both parties. In the agreement, outline the specific learning objectives, the short-term nature of the work, and any reimbursements provided.
This document also helps reduce the risk of misclassification. When the arrangement is transparently structured for the intern’s benefit, both the business and the intern are better protected. For more detailed guidance on drafting clear legal documents, you might review our information on what is a contract and why precise agreements matter.
The Consequences of Misclassification
Misclassifying an intern as a non-employee can have significant consequences. If it later emerges that the intern was performing essential duties and received payments akin to wages, your business might be required to back-pay entitlements under the Fair Work Act. Penalties in such cases can be steep, with fines reaching up to $51,000–$54,000 per breach.
In addition to monetary penalties, misclassification can lead to reputational damage and complicate your business’s relationship with regulators. The Fair Work Ombudsman and other government agencies monitor these issues closely. It is, therefore, critical to ensure that every aspect of your intern program is designed to emphasize learning rather than replacing permanent staff.
Key Factors to Distinguish Between an Intern and an Employee
Purpose and Focus of the Arrangement
The primary question to ask is: Who benefits more – the intern or the business? A genuine internship is structured to provide valuable learning experiences for the intern, not to fill a gap in your workforce. Ask yourself whether the tasks assigned are primarily geared toward the intern’s training or whether they contribute significantly to the business’s core functions.
Duration of the Internship
A fixed-term internship reinforces the idea that the arrangement is temporary and educational. If the internship extends beyond a reasonable time frame, it might start to resemble a standard employment arrangement.
Nature of the Work and Obligations
- Learning and Observation: The duties should allow the intern to observe and learn rather than perform essential functions.
- Limited Workplace Obligations: The work assigned should not mirror that of regular employees. Instead, it should be designed to provide development opportunities.
- Non-Productive Tasks: Tasks should be secondary or supportive in nature, ensuring the intern’s work does not drive your company’s productivity.
Payment Structure
If you’ve structured your intern’s compensation as reimbursements or stipends (rather than regular wages), you’re more likely to be on the right side of the law. Once again, studies by the Fair Work Ombudsman highlight that regular payments resembling wages are a key indicator of an employment relationship.
Practical Steps for Businesses
Ensuring the proper classification of interns starts with a thoughtful strategy. Here are some practical steps to help you manage internships correctly:
- Draft a Clear Internship Agreement: Detail the internship’s objectives, duration, duties, and any reimbursements. Clear documentation minimizes the risk of later disputes. For more guidance on contracts and setting expectations, check our guide on contract essentials.
- Review the Nature of the Work: Regularly evaluate whether the intern’s tasks are genuinely educational. If an intern’s duties begin to resemble those of a full-time staff member, consider adjusting the arrangement or reclassifying the role.
- Monitor Payment Practices: Structure any payments as expense reimbursements or modest stipends rather than fixed wages. This will help avoid blurring the line between a learning program and an employment relationship.
- Consult with a Legal Professional: When in doubt, seek professional advice. Understanding the nuances of employment law can be complex, and a consultation can ensure your practices align with both business objectives and legal requirements. Resources such as our feature on employment contracts can offer further clarity.
- Maintain Regular Reviews: As your business evolves, so can the intern’s role. Regular reviews help ensure that the internship remains primarily an educational opportunity and that any evolving responsibilities are clearly documented.
Combining Business Objectives with Legal Compliance
Small businesses frequently benefit from the energy and fresh perspectives that interns provide. However, it’s crucial to balance these advantages with a strict focus on legal compliance. Interns can add value to your business but must never be used as a substitute for regular staff unless the relationship is restructured as formal employment.
Maintaining proper records, clear agreements, and a well-defined scope of work for interns protects your business against future legal challenges. As regulations continue to evolve, staying informed through reliable sources such as government websites and professional legal services is essential.
It’s not uncommon for business owners to wonder whether their current internship practices might inadvertently expose them to employment liabilities. By regularly reviewing your policies and ensuring that intern roles remain educational, you safeguard both your business and the intern’s developmental experience. For more insights into business obligations and the benefits of proper documentation, our article on register a business offers a broader perspective on business compliance.
Key Takeaways
- The primary purpose of an internship should be for the intern’s learning and development rather than significantly driving business productivity.
- Payment structures for interns must be carefully designed to avoid resembling regular wages, thereby preventing misclassification as an employee.
- A clear internship agreement with a fixed term is essential to set expectations and provide legal protection.
- Misclassification can lead to significant legal liabilities, including back pay and fines under the Fair Work Act.
- Regular review of the intern’s role and duties helps ensure that the arrangement remains educational and compliant.
- Seeking professional legal advice, such as understanding employment contract requirements, can offer further protection.
- Balancing business objectives with legal obligations is key to successfully integrating interns into your workspace without incurring unwanted liabilities.
If you would like a consultation on intern classification and ensuring your internship arrangements are legally compliant, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
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