If you run a for-profit startup in the US and want an unpaid engineering intern, assume you will need to pay them. The Department of Labor uses a "primary beneficiary" test, and an intern who writes production code for your product is usually the one doing the benefiting for you. Pay at least minimum wage, ideally a fair intern rate, keep the work real but supervised, and treat the internship as a hiring pipeline rather than free labor.
Founders ask me this more often than you would expect, usually right after a student offers to "help out for the experience." It sounds like a good deal for both sides. Legally and practically, it rarely is.
This is not legal advice. Internship rules vary by state, and some states are stricter than federal law. Ask your employment lawyer before you start.
What the federal test actually looks at
In 2018 the Department of Labor updated Fact Sheet 71, which sets out how it decides whether an intern at a for-profit employer is an employee under the Fair Labor Standards Act. It uses a primary beneficiary test with seven factors. Paraphrased, they ask whether:
- Both sides clearly understand there is no pay.
- The training resembles what the intern would get in an educational setting.
- The internship is tied to the intern's formal education, such as coursework or academic credit.
- The schedule fits around the academic calendar.
- The internship lasts only as long as it gives useful learning.
- The intern's work complements paid staff rather than replacing them, while still giving real education.
- Both sides understand there is no promise of a paid job afterward.
No single factor decides it. You can read the full text on the Department of Labor's fact sheet.
Why engineering internships usually fail the test
Look at what a startup actually wants from an intern. You want them to fix bugs, build a feature or clean up a backlog that nobody else has time for. That is the problem. Factor six asks whether the intern replaces paid work. At a five-person company with one engineer, an intern who ships code is almost by definition doing work you would otherwise pay for.
Factor two and three are also hard. Most startups have no structured training program and the intern is not getting academic credit. "Learn by doing on the real product" is good experience, but it is not the classroom-like training the test describes.
Then there is the practical exposure. If the arrangement later turns sour, a former intern can claim back wages and, under the FLSA, liquidated damages that can double the amount owed. For a small company that is not ruinous, but it is a distraction you do not need, and it is the kind of thing that turns up awkwardly in diligence. The post on what diligence finds about your team shows how people issues surface later.
What to do instead
Pay a fair intern rate
Pay at least the minimum wage in the intern's location, and preferably a rate that reflects real engineering work. Computer science interns at established tech companies are often paid well above minimum wage. You do not need to match big-company rates, but a fair rate gets you better candidates and removes the legal question.
Treat it as a paid trial for a junior role
The best reason to have an engineering intern is to find a future hire. Structure it like a short paid trial: a defined project, a named mentor, a mid-point check and a decision at the end. Our post on the paid trial before hiring your first engineer uses the same structure for senior candidates.
Do not make the intern your first engineer
An intern should not be the only person touching production. They need review, a safe environment and someone who can say no. If you do not yet have that person, you are not ready for an intern. Your first engineering hire should be senior enough to work alone; see should your first engineer be a generalist.
Give them real access, safely
Use separate accounts, least-privilege permissions and no access to customer data unless the project needs it. Remove access on the last day. Our checklist on shared admin logins applies here: interns often get handed a founder's password because it is faster.
Sort out IP from day one
Whether paid or not, the intern should sign an agreement that assigns the code they write to the company. Without it, you may not clearly own what they built. This trips up startups at their first priced round more often than you would think.
What a good startup internship looks like
Here is a structure I have seen work at seed-stage companies:
- Ten to twelve weeks, during the academic break.
- One project with a clear outcome, such as an internal tool or a well-scoped feature behind a flag.
- A mentor who spends at least three to four hours a week reviewing code and pairing.
- Weekly short demos to the founders.
- A written assessment at the end and an honest conversation about a return offer.
That costs you money and mentor time. In exchange you get a junior engineer you have actually seen work, which is worth more than any interview loop. As AI tools change what junior engineers do, the mentoring piece matters more, not less; see junior engineers and AI agents.
Frequently asked questions
Can we offer equity instead of pay?
Equity does not replace minimum wage obligations for an employee. If the intern is an employee under the test, they need to be paid wages. Equity can be on top.
What if the intern gets academic credit?
Credit helps with some factors, but it does not make an internship that mainly benefits you lawful. The overall relationship still matters.
Is an unpaid internship ever fine?
It is more defensible when it is genuinely educational, tied to a program, short, and does not replace paid work. Those internships are rare at an early-stage product company.
Can a fractional CTO mentor an intern?
They can design the project and review the code, but a junior person also needs day-to-day support. If you want help deciding whether an internship or a junior hire fits your stage, book a call.