Seven Reasons to Pay People Who Perform Services for Your FOR-Profit Business

Some of my favorite leaders encourage people to volunteer their services when they are seeking a career change. There are still plenty of businesses that post unpaid internship positions that also fail to provide educational credit for the intern. These seem like great opportunities for the workers to build skills and experience they can list on their resumes and for the businesses to get free labor. It’s a win-win. Right?

Wrong. Several class action lawsuits have been filed, and there are firms dedicated to identifying other businesses that violate labor laws with their unpaid internships. I am not going to get into those legal discussions here, since the class action lawyers and Department of Labor (“DOL”) have them pretty well covered. I want to focus on the other and more practical incentives that supplement Reason #1.

  1. The law typically requires you to pay people who perform services in for-profit businesses, especially where the work they did would have otherwise required the business to hire and pay an employee. Yes, not-for-profit businesses regularly use the services of volunteers, but if you are in the business to make money, rather than for an artistic, charitable, educational, humanitarian, or other non-profit motive, it’s only fair that you pay people to help you make that money.
  2. It’s respectful and fair to pay people for services that help you. Remember when that friend called you yet again for free services and how much you resented it? Or that family member who you’ve spent thousands of dollars bailing out of trouble? Or the neighbor who borrows things that never return? Do you think that treating other people in the same way somehow balances this out?
  3. You will have more control over the work product. I recommend that businesses pay workers enough to make it hurt a little to pay them. This helps them hold the workers to higher standards and avoids situations in which they excuse poor performance because they either aren’t paying them or aren’t paying them what they could demand elsewhere.
  4. Your insurance carrier probably deems the intern, or volunteer, your employee. If your insurance carrier doesn’t know about the intern and finds out only after a claim is filed, you might have no coverage for the claim–or worse. Suddenly, the premiums you paid seem more like donations.
  5. If your volunteer gets mad at you, quits, and files an unemployment insurance (“UI”) claim, you will likely lose any challenge to the claim. You might also owe substantial back wages, penalties, and interest. If the volunteer worked more than 40 hours per week, you might owe overtime pay as well. Any money you supposedly saved on wages will be paid in other ways.
  6. Once you lose a UI claim, you will probably be audited by the DOL and the Workers’ Compensation Board (“WCB”). Either agency can do at least a six-year “lookback“, which means you could be penalized for similar infractions that occurred before. If you have a long history of using unpaid interns or volunteers, you might not be able to afford the penalties.

In short, if you can’t afford to pay the workers in your for-profit business, you might want to reevaluate your business model and strategy before you start building on it. Otherwise, you build a business on a fault line and risk having everything crumble just when you thought you had succeeded.

NOTE: This post is a general overview of the issues that might arise for businesses that hire interns or use volunteers. It is not legal advice, and there is certainly no guarantee that any of the actions detailed above will generate a similar or specific result. Past success is never a guarantee of a future outcome. If you require information or advice applied to your unique situation, please make an appointment to discuss it with an attorney. Don’t rely solely on what you read on the Internet.

Nance L. Schick, Esq. is an attorney, arbitrator, and mediator based in New York City. She is the founder of The Law Studio of Nance L. Schick. Her holistic, integrative approach draws from her experience as a human resources supervisor, as well as her legal and EEOC training. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution: Seven Choices and Five Actions of a Master, and an award-winning entrepreneur, who has been acknowledged by the New York Economic Development Corporation/B-Labs (Best for NYC 2015 finalist), U.S. Chamber of Commerce (2015 Blue Ribbon Small Business), Enterprising Women Magazine (Honorable Mention, 2014 Woman of the Year awards), and Urban Rebound NY/Count Me In (2013 Pitch Competition finalist). Most recently, she attained her certificate in Ethno-Religious Conflict Mediation and now serves as the Main ICERM Representative to the United Nations.