Non-employees: Interns, volunteers, and independent contractors

As a nonprofit considers their workers, there may be questions about what qualifies as a volunteer, intern, employee, or independent contractor. It is important to properly identify the type of worker. For example, misclassifying employees as independent contractors can expose an employer to liabilities from unpaid minimum wages and overtime pay to federal, state, and local tax withholdings.

Topics covered:

• Unpaid interns
• Volunteers
• Independent contractors

Upaid interns

The law narrowly limits an employer’s ability to use unpaid interns. The U.S. Department of Labor looks at seven factors for evaluating whether an unpaid intern’s status is valid, and an employer should examine to what extent:

1. An understanding exists between the intern and employer that there is no expectation of compensation – any promise of compensation, stated expressly or implied, suggests the intern is an employee.
2. The internship provides training that would be similar to an educational environment.
3. The internship is tied to the intern’s formal education program by integrating the experience with coursework or academic credits.
4. The internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
5. The duration of the internship is limited to the period in which the intern receives beneficial learning.
6. The intern’s work complements, instead of displaces, the work of paid employees while providing significant educational benefits to the intern.
7. The intern and employer understand that the internship is conducted without entitlement to a paid job at the end of the internship.

Both the U.S. Department of Labor and Washington State Department of Labor & Industries have additional resources related to unpaid internships.

• U.S. Department of Labor: Internship Programs Under the Fair Labor Standards Act
• Washington State Department of Labor & Industries: Unpaid Internships 101

Volunteers

The Washington State Department of Labor & Industries defines a volunteer as someone who freely gives their time and talents without expectation of pay. In addition, a volunteer can only volunteer at an educational, charitable, religious, state or local government, or nonprofit organization. Each volunteer should sign a document confirming volunteer status, which includes an acknowledgement of no pay.

Independent contractors

An “independent contractor” is a person or business that performs services for an organization under a contract between the parties, with the terms spelled out such as duties, pay, the amount and type of work, and other matters. An independent contractor pays their own Social Security and taxes, and is not eligible for retirement or health benefits.

Individual workers hired to perform functions essential to your organization’s primary purpose, who work full or part-time under the employer’s control, and who do not provide similar services for other organizations are not likely to qualify as independent contractors. The U.S. Department of Labor evaluates independent contractor status based on the following factors. No single factor is regarded as more important than another.

1. Extent to which the worker’s services are an integral part of the employer’s business.
2. Permanency of the relationship.
3. Amount of the worker’s investment in facilities and equipment.
4. Nature and degree of control by the principal.
5. Worker’s opportunities for profit and loss.
6. Level of skill required in performing the job and the amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent enterprise.

Misclassifying employees as independent contractors can expose an employer to liability for unpaid minimum wage and overtime, sick and vacation pay, workers’ compensation premiums, federal, state and local income tax withholdings, Social Security and Medicare contributions, unemployment, insurance, taxes, and benefits. There may be penalties under state and federal law for misclassification.

Note: The City of Seattle has issued new rules governing organizations hiring independent contractors called the Independent Contractors Protections Ordinance that will be effective on September 1, 2022.