5 Reasons Why Unpaid Internships COST Your Business Money

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You’re a growing business and you need some help for some entry-level tasks. Eureka: interns! They’re a dime a dozen and you don’t even have to spend that dime, since they’ll work for free, right? After all, you’re helping them out by giving them work experience and college credit and even free drip coffee.

Not quite. Slowly but surely, unpaid internships are on the decline in the US with more than half of all internships having monetary compensation. This is due in part to high-profile lawsuits (Condé Nast, Fox) that have argued on behalf of interns looking for fair pay, as well as overall changing sentiments regarding "free labor."

While the ethics of unpaid internships are still being debated, there may be a better motivation for your business to pay your interns: self-interest. Because it’s likely that not paying interns is actually costing your business money in the long run.

Let’s look at five reasons why unpaid internships are a losing strategy for your company.

1. You Get Unmotivated Interns

If college credit is all you offer your interns, it stands to reason you’ll get interns simply looking for college credit. Sure, you might expect that your company is exciting enough and the work engaging enough to motivate interns to show up on time, perform, and stay with the business; but universities try to do the same with their classes, and you’ll still see students coming in late and falling asleep in the back of the room.

Simply put, humans don’t value things that are free. It’s easier to be disengaged and lackadaisical when there isn’t an immediate carrot (paycheck) or stick (no paycheck) on the job. This often leads to bad interns who can end up costing your business much more than the productivity they generate.

Because it takes time to oversee an intern, and potentially extra time to oversee an unmotivated one, it can be a drain on your company’s resources if their tasks are done poorly, incomplete, or just not done at all.

You may be asking yourself “is this a real cost?” Absolutely. A Gallup poll estimated that employee disengagement costs the US economy as much as $350 billion each year. And if you’ve heard of “quiet quitting” in the past year, that’s just a modern term for being disengaged at work.

Paying your interns can boost motivation, accountability, and help you get ROI on your interns that more than make up for the cost.

2. You Get High Intern Turnover

How much time and effort does it take your business to find and hire interns throughout the year? It’s probably more than you think once you factor in the hours it takes to place ads, work with universities, review resumes, interview, onboard, and manage your new hires. Then in a few weeks, the interns quit because they found a better opportunity elsewhere. Suddenly, you have to do the hiring process all over again.

This is a common problem in the workforce today with about one trillion dollars lost to US businesses due to voluntary turnover. And it’s more common with young professionals (ie. Gen Z) who tend to bounce from one gig to the next as they try to find a good fit.

By not incentivizing your interns with pay, your business will see a higher turnover rate that can effectively cost more due to replacing that intern than it would have to pay them in the first place. Remember, the average cost-per-hire for early-career employees like interns is over $6000. Retaining your interns is a cost-saving measure, even after you factor in an hourly salary.

3. You Miss Out on Great, Diverse Candidates

When companies don’t offer paid internships, it severely limits the candidates who can even take on the internship at all. The National Association of Colleges and Employers found that the majority of students who were interns in the past year “identified as white and male.” This is because only the affluent could afford to take on unpaid internships.

And here’s a sobering stat: “47% of unpaid interns reported taking on debt to complete their internship, with those debts averaging more than $2,500.”

For companies that are championing diversity in their hires, they are missing out on future employees by having an unpaid internship program. And with the decline of college enrollments and the rise of alternative educational paths (such as bootcamps and certificate programs), offering college credit doesn’t matter when a potential intern isn’t attending college at all.

As we’ve mentioned already, hiring is expensive. By not taking advantage of a diverse internship program by offering hourly wages, your business will miss out on upstream diverse talent and will be paying for it trying to hire downstream after they hit the market.

4. You Don’t Establish a Talent Pipeline

One of the most cost effective ways to hire employees is to have a talent pipeline that you can draw from. Talent pipelines save time and effort while reducing costs associated with the constant search for the right employees. And as any talent pipeline guide will tell you, a thought-out and effective internship program is one of the best ways to get it going.

Unpaid internship programs severely limit the actual ‘talent’ in your talent pipeline, as previously discussed, but it also stifles it by decreasing loyalty. And if you don’t think money equates to loyalty, the world recently learned during the Great Resignation how important that relationship is. 61% of those surveyed said that “loyalty to their current employer would increase if they received a raise in pay.”

Without loyalty, you don’t have a talent pipeline. Rather, you’re training and providing experience to early-career workers who will be poached by another company who offers them more. All of a sudden, your pipeline that was supposed to insulate your talent from other companies is serving the opposite goal.

5. You Get a Bad Brand Reputation

The future of workers is Gen Z and this up-and-coming generation cares about a brand’s values, especially when it comes to work-life balance, diversity, equity, and social justice. As you might imagine, asking for unpaid labor from this generation doesn’t go over well. Especially when there is an ongoing labor shortage and they have the luxury of being picky in where they work.

Unpaid interns will remember that aspect of your company, and worse yet, they won’t be shy about talking about it, similar to this article written by a frustrated unpaid intern.

Earning a reputation of this sort can be a major turn-off for prospective Gen Z workers and can hinder your hiring process, making it that much more difficult – and more expensive – to fill your open positions. Instead, build a brand that Gen Z is attracted to by paying a fair wage to your interns. In the long run, showing that you care about even the “lowest tier” of employees will attract candidates who are looking for the right values to your company.

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