Internship or apprenticeship is an important stepping stone for every student, whether in academia or just graduating from college. These are opportunities to take one's learning and hands-on experience in the field of their specialization a level above.
Completing an internship or apprenticeship is often mandatory to get through the final stages of the course. However, landing these opportunities is not easy. And even more difficult is to get paid for them.
Firms and companies do not pay an hourly wage or a fixed salary for internship positions. Therefore, it can become financially burdensome for an intern to cover the cost of lodging, commuting, and other necessary expenses. This is where a stipend comes in.
A stipend is a small yet fixed amount of money paid by firms, companies, and offices to temporary employees such as interns, trainees, and apprentices. The purpose of a stipend is not entirely to compensate the employee for their time and labor, but rather to offset basic expenses of living.
Since a stipend is not an hourly or performance-driven compensation, it does not replace wage or salary. Therefore, the amount of money paid as a stipend can be considerably low. An average stipend is determined by the local cost of housing, travel, and food.
The period of payment can vary from one place to another. It can be a weekly payout if the firm decides so. It can also be a monthly amount if the employee is hired for around six months, or it can be a lump sum amount if the working period is only 1-2 months.
For example, if a junior medical intern assists a senior doctor at the clinic, the intern is likely to be paid on a per month basis. On the other hand, if a college intern joins an accounting firm to do basic filing and data entry for two months during the summer break, he or she is likely to get paid a lump sum amount at the end of the internship.
To understand how stipends work, you have to first get a grasp on what is the definition of a stipend.
The Cambridge English Dictionary defines 'stipend' as "an amount of money that is paid regularly to someone, especially for work or training that is usually unpaid".
A stipend, at its core, is essentially that. However, there are several ways that it can be agreed upon between the employer and the employee. The company or the firm that regularly hires interns can have a certain amount written into their policy for a particular period of internship.
Alternatively, the company and the intern can discuss and settle on an amount for the time period of work.
One needs to fit certain criteria to be eligible to receive stipends. As already discussed, it is not an alternative for a full-time or even a part-time wage or salary. Therefore, you will be legally eligible to receive stipends only if you are:
As already explained, only certain types of work will get you a stipend. If you are working anywhere in the following capacities, you are eligible to receive a stipend.
This is not to say that these positions cannot earn you a full-time or part-time wage or salary. It all depends on the agreement you have agreed to sign on. In most cases, these positions are either unpaid or compensated with a stipend.
To further understand what is a stipend, here are some elements of the concept that you need to have a grasp on.
The main use of a stipend is to help trainees or interns cover the expenses of living, such as housing, commute, and more. However, that is not why all the stipend is paid for. In the academic sector, a stipend is paid to fund one's expenses for research.
A stipend can depend on the type of work one needs to do, therefore the use of it is flexible. In the case of a technical trainee, stipends can be used to cover the cost of laptop upkeep and maintenance.
While in the case of a software engineer, a stipend will cover the cost of daily travels, data charges among other things.
In the case of wages or salaries, there is a minimum amount that you can claim as per law. However, stipends do not fall under the minimum wage category. How much stipend is paid to the trainees or interns is totally dependent on the employers.
You can, of course, negotiate for more, but there is no such law in place to ensure you receive a minimum amount. In fact, the stipend you receive might even be lesser than the minimum wage.
A stipend is definitely taxable. However, since it is not a wage, your employer will not withhold social security or Medicare taxes. Having said this, you have to segregate the amount every month to pay the tax at the end of the Financial Year.
It is essential that your stipend is recorded on your annual tax return. It might be under different terms depending on the type of work you receive it for, such as "taxable scholarship", "taxable grant scholarship, "non-qualified fellowship", etc. If you are not too aware of tax-related details, get in touch with a professional who will explain to you, and also manage your returns.
Although a stipend is determined by the employer and there is no such law for you to demand a minimal payout, you can still negotiate for an increment. Here are a few situations in which you can ask for a higher stipend:
Here are the key differences between salary and stipend.
Although we are constantly using the terms' intern' and 'internship,' stipends are not just for college or university students. Moreover, stipends are not just paid on the basis of the work you do. It can be compensation for any extra work you do at your full-time workplace or a reimbursement for a mandatory cost you have to bear as well.
Several factors weigh in to determine what kind of stipend you will be earning.
This is one of the most common types of stipends that you can receive. People involved in academia often receive a fixed amount from the institution to fund their research work.
Stipends can be paid to compensate you for certain specific tasks your employer asks you to do that does not fall under your regular job description. For example, consider you are delegated to represent your firm at a conference or escort a top-level client for a big project. In that case, you are likely to be in line for a stipend reimbursing for all the expenses plus your own compensation for the task.
Stipends can be in the form of free entry to training courses or wellness center memberships. However, chances are, these need to be aligned with your line of work. For example, a gym trainer might get free of cost membership at his or her workplace to help keep themselves in shape for their job. Alternatively, an IT sector employee can get reimbursed for any training they do to learn the industry's latest technologies.
Many workplaces have health insurance of their own. However, if you hold individual health insurance, you can be eligible to get the premium cost covered by your employer in the form of a health insurance stipend. You should especially seek this out if your job entails high-risk exposure, such as working in warehouses, factories, or construction sites.
Fellowships are financial aids given to students to help support their education. It is meant to cover the cost of tuition fees in the form of stipends. In most cases, the student does not have to provide a service to receive this type of stipend and only need to continue their education.
Similar to being a student, a clergy only needs to continue practicing their ministries to receive a stipend of this kind. This is mostly funded by congregation donations to help the clergy fund their cost of living without having to work.
Stipends are usually taxable under the law in most states. According to the IRS, stipends are taxable income, and you will have to pay both federal and state taxes on them at the end of every Financial Year.
However, there are a few loopholes. First of all, since stipends are not considered to be wages, you need not bear Social Security or Medicare taxes. Secondly, if you can show that your stipend is being used for educational purposes, it will not fall under taxable income.
For example, if a trainee teacher earns $5000 teaching occasional classes at his or her place of education, and a part of that goes for their own tuition, residential, and examination fees, then that amount of the stipend will not be taxable. You will, however, still need to pay taxes on the remaining amount.
We hope this article gave you a fair idea of what stipends are and what they encompass. Meanwhile, you can check out our career advice page to get insights on several other interesting topics. Happy reading :)