An unpaid internship becomes unlawful the moment the person doing it meets the legal test for worker status, and from that point the business owes at least the National Minimum Wage for every hour worked, backdated. This article is for the employer who already has an unpaid intern in place, or has just been asked an uncomfortable question about one, and needs to know what actually happens next rather than how to set the arrangement up correctly in the first place.
> Quick answer: An unpaid internship crosses into unlawful territory once the intern is required to attend set hours, follow instructions, and produce work the business benefits from. At that point worker status generally applies regardless of the word "intern" on the contract. HM Revenue and Customs can pursue arrears of pay, and a worker can bring their own claim. "They agreed to it" is not a defence, because the right to at least the National Minimum Wage cannot be waived by consent.
The point where the line gets crossed
There is no single dramatic event that flips an internship from lawful to unlawful. It is a threshold, crossed quietly, the moment the reality of the placement stops looking like observation and starts looking like work. A person who is expected in the office five days a week, given tasks with deadlines, told what to do and when, and whose output the business relies on, has crossed it. So has a person doing routine cover for a role that would otherwise need a paid employee, even if the business genuinely believed it was offering "experience" rather than employment.
The test does not care about intent. A well-meaning founder who thinks they are doing a student a favour by giving them "real responsibility" has, by giving them real responsibility, likely created a worker. The moment that happens, the National Minimum Wage applies from the start of the arrangement, not from whenever someone notices the problem. That backdating is what turns a paperwork oversight into a financial one.
Enforcement, and what it actually looks like
HM Revenue and Customs enforces the National Minimum Wage in England and Wales, and it does not rely solely on a worker coming forward. HMRC can and does investigate on its own initiative, following complaints, tip-offs, or targeted enforcement in sectors where unpaid work is common, including fashion, media, charities and the arts. Where HMRC finds underpayment, the consequences are not limited to paying what should have been paid all along. Employers can be issued with a notice of underpayment requiring arrears to be paid, and in addition to arrears, a financial penalty can be applied on top, calculated against the amount owed. HMRC also has the power to name employers who fall foul of minimum wage law, which carries a reputational cost well beyond the arrears figure itself.
Separately from HMRC enforcement, a worker who was not paid can bring their own claim, typically through an employment tribunal, for unlawful deduction from wages or a straightforward claim for arrears. That claim can be brought after the internship has ended, sometimes well after, and it does not require the worker to still be engaged with the business. An intern who left on good terms two years ago can still raise the question if the arrangement genuinely amounted to unpaid work as a worker.
Why "they agreed to it" changes nothing
The most common defence employers reach for, and the weakest one, is that the intern knew the role was unpaid and accepted it anyway. Consent is simply not relevant to the legal analysis. The right to be paid at least the National Minimum Wage is a statutory right, not a contractual term that two parties can bargain away. An intern signing a document that says "this is an unpaid placement" does not waive anything, because there is nothing in that document capable of overriding the statute. The only question that matters is whether the person meets the factual test for worker status. If they do, the agreement they signed saying otherwise carries no legal weight on the pay question.
This surprises a lot of employers, who assume that because the arrangement was voluntary and clearly described, it must be enforceable as written. It is worth being blunt about this: a signed acknowledgment that an internship is unpaid is not a shield. It may even work against the employer, since it demonstrates the business turned its mind to the pay question and got the analysis wrong in writing.
What the arrears actually cost
Arrears are calculated on the difference between what was paid, often nothing, and what the applicable National Minimum Wage rate for the intern's age band should have been, across every hour actually worked for the whole period of the arrangement. For an internship that ran several months at full-time hours, that arithmetic adds up quickly, and it is calculated at current rates for enforcement purposes in some circumstances, which can mean paying more than the historic rate that applied when the work was actually done. Add a penalty on top, potential naming, and the management time spent responding to an HMRC enquiry, and an internship that cost nothing on paper becomes one of the more expensive people decisions a small business makes.
Fixing it before it becomes a claim
If you recognise your own arrangement in the description above, the sensible move is not to wait for a complaint. Work out what the intern should have been paid, pay the arrears voluntarily, and put the relationship on a proper paid, fixed-term footing going forward if it is going to continue. Voluntary correction, done properly and promptly, is a materially better position than an HMRC finding, and it costs the same money either way. Our companion piece on whether you have to pay an intern sets out the worker-status test itself, which is the starting point for working out whether a correction is actually needed. If the role has in practice become indistinguishable from a permanent job, it may be time to move the person onto a proper employment agreement rather than continuing to call the arrangement an internship at all.
Businesses sometimes assume the safest move is simply ending the placement quietly and hoping the question never comes up. It does not remove the liability. Arrears remain owed for the period actually worked, and ending the arrangement does not stop a former intern raising a claim or HMRC opening an enquiry after the fact.
Getting the paperwork right from here
Where a genuine, ongoing intern role continues, put it on a written footing with pay stated plainly, tied to the applicable age band, alongside holiday accrual under the Working Time Regulations 1998, following the same intern agreement template the role should have followed from the outset. Our guide to drafting an intern agreement with AI covers building the corrected version through AI Legal Drafting, a live feature that assembles vetted England and Wales clauses rather than generating new legal wording, the same assembled-clauses distinction worth understanding before you rely on the output, and treat it as a starting point rather than the final word given how much is riding on getting worker status right this time. Send it for e-signature once it is settled: electronic signatures are admissible for most commercial documents in England and Wales, with exceptions including deeds, wills, land transfers and lasting powers of attorney, so a corrected intern agreement signs cleanly in the browser. Store the signed contract, and a record of any arrears paid, in the same rooms as the rest of your employment paperwork, with page-by-page analytics showing whether the corrected terms were actually opened and read, and set a reminder ahead of the fixed term's end date through your contract register so the corrected arrangement does not drift back into the same problem.
This article is written for England and Wales, where HMRC enforces the National Minimum Wage Act 1998 in the way described above. If you are outside England and Wales, the enforcing body and the specific statute will differ, but the underlying question, does the reality of unpaid work meet the local test for worker or employee status, and what is the local minimum pay enforcement mechanism, is the same one to check against your own jurisdiction.
Frequently asked questions
Can HMRC investigate an unpaid internship without a complaint?
Yes. HMRC can and does open National Minimum Wage investigations on its own initiative, not only in response to a worker complaint. Sectors known for informal unpaid arrangements, such as media, fashion and the charity sector, have historically seen targeted enforcement activity.
Can a former intern claim arrears after they have left?
Yes. A worker who was underpaid can bring a claim for arrears after the internship has ended, and this is not limited to a short window immediately afterwards. The claim relates to what should have been paid during the period actually worked, regardless of when it is raised.
Does a signed agreement saying the internship is unpaid protect the employer?
No. The right to at least the National Minimum Wage is a statutory right that cannot be signed away by agreement. A document describing the role as unpaid does not change the outcome if the reality of the work meets the worker-status test, and it can work against the employer as evidence the question was considered and misjudged.
What penalties can HMRC apply for underpaying an intern?
Alongside requiring arrears to be paid, HMRC can apply a financial penalty calculated against the amount owed, and has the power to name employers found to have broken National Minimum Wage law. The financial and reputational cost together can significantly exceed the value of the wages that were never paid.
What should an employer do if they realise an intern should have been paid?
Work out the correct arrears based on hours worked and the applicable rate, pay them voluntarily, and move the arrangement onto a proper paid, written footing if it continues. Voluntary correction before HMRC involvement is generally a better position than waiting for an enquiry or a claim.
Draft a corrected intern agreement with AI
Put the arrangement right with a paid, fixed-term intern agreement drafted from vetted England and Wales clauses and signed in the same place you drafted it. The free tier gives you three rooms and twenty-five active links, forever, with no card required; the AI drafter and e-signature start on Pro at £19 a month. Start for free and close the gap before it becomes a claim rather than after.
This article is general information, not legal advice. Worker status and National Minimum Wage arrears are fact-sensitive and carry real financial exposure, and a live or historic unpaid arrangement deserves review by a qualified adviser.
Sources
- Employment status and the tests for worker/employee status: gov.uk, Employment status, https://www.gov.uk/employment-status
- Rights of interns and when the National Minimum Wage applies: gov.uk, Employment rights for interns, https://www.gov.uk/employment-rights-for-interns
- National Minimum Wage Act 1998, enforcement and penalties: https://www.legislation.gov.uk/ukpga/1998/39
- National Minimum Wage rates and enforcement guidance: gov.uk, National Minimum Wage and National Living Wage rates, https://www.gov.uk/national-minimum-wage-rates ; gov.uk, Enforcement of the National Minimum Wage, https://www.gov.uk/guidance/enforcement-of-the-national-minimum-and-living-wage
- Statutory holiday of 5.6 weeks under the Working Time Regulations 1998: https://www.legislation.gov.uk/uksi/1998/1833
- Electronic signatures, validity and exceptions: Law Commission, Electronic execution of documents (2019), https://lawcom.gov.uk/project/electronic-execution-of-documents/