Question:
It seems unclear for nonprofits who can have volunteer workers what the proper use of interns should be per IRS regulations. Specifically, we're concerned with liability. What are the differences in terms of liability between volunteers and interns? Is one set preferable over the other?
Answer:
The principal potential liability for the use of volunteers and interns is substantially the same – i.e., the risk that the individual will be deemed as "employee" for wage payment and tax purposes.
Unpaid interns and unpaid volunteers, if properly classified, are not employees for purposes of many federal laws. This means that a nonprofit receiving the benefit from the services of an "intern" or "volunteer" is not generally required to pay the individual wages or provide employee benefits and is not required to pay employment taxes to the IRS or provide other employment related insurance and tax contributions. However, whether an individual is properly classified as an "intern" or "volunteer" requires a review of the relationship between the individual and the nonprofit looking to both federal and state law/standards.
With respect to volunteers, the U.S. Department of Labor's ("DOL's") position is that religious, charitable or other similar nonprofit organizations may properly utilize volunteers where the individual donates their services for public service, religious or humanitarian objectives, usually on a part-time basis and without the expectation of pay. Interns, on the other hand, are considered to be "trainees." The DOL has issued guidance stating that in order for interns in for-profit enterprises to be properly classified as non-employees, the intern experience must be for the benefit of the intern and the organization must not derive an immediate advantage from the intern's services, the intern must receive training similar to training that would be provided in an educational environment, the intern must not displace regular workers, the intern must not be entitled to a job at the conclusion of the internship, and there must be an understanding from the beginning that the intern is not entitled to wages. While the DOL suggests in a footnote that "non-profit charitable organizations" will not be subject to the same standards, there is no blanket exclusion for all nonprofit entities.
Thus, while both volunteers and interns are not entitled to wages, the relationships are dissimilar. Whether one is preferable over the other will depend on what activities the nonprofit is seeking to have the individual perform.
A nonprofit utilizing "interns" or "volunteers" should ensure these individuals are properly classified. By aligning your volunteer or internship programs with the DOL's guidance, a nonprofit can reduce the risk of misclassification. In the event of misclassification, a nonprofit faces potential liability for overtime and back wages, liquidated damages, and attorneys' fees. In addition, a nonprofit can be liable for back employment taxes such as social security, Medicare, and unemployment tax. Moreover, the individual may be entitled to retroactive employee benefits.
Assuming individuals are properly classified as "volunteers" or "interns" a nonprofit still faces potential liability similar to that faced with regular employees such as claims of harassment, discrimination, and workplace injuries. Proper training, internal policies, and insurance coverage can help to limit potential exposure.
This article was originally published on GuideStar on January 15, 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
