Interns at Startups and Scale-ups: Tax and Legal Considerations

Why internships require extra attention, especially at growth companies

At Startup-Recht, we regularly see young tech companies eager to work with interns. This makes sense: startups and scale-ups build quickly, have small teams, and give people significant responsibility early on. However, this also creates a risk. As soon as an intern is no longer primarily learning but mainly participating in operations, the classification of the relationship comes under pressure. And if that classification shifts, the obligations regarding wages, payroll taxes, and administration usually shift as well.

This risk is greater than many founders realize. The title of the contract is not decisive, but rather how the collaboration is actually structured. In other words: a document stating "internship agreement" will not protect you if the daily practice primarily resembles regular employment under supervision, for remuneration, and for the core of the business.

An internship is only an internship when learning is central

The core is simple. An internship is intended for learning, while an employment contract is for performing productive work. Therefore, when assessing, it is determined whether the activities are primarily aimed at increasing the intern's knowledge and experience, or rather at serving the organization's interests. As soon as production takes precedence, an internship arrangement becomes legally precarious.

For startups and scale-ups, this is an important reality check. An intern who manages their own clients, fulfills a production role, covers for absent staff, or independently delivers deliverables that are directly part of the company's core activity, quickly moves beyond the classic learning nature of an internship. This is especially true if supervision is limited, learning objectives are barely defined, and feedback or internship reports are missing. In such situations, it becomes much harder to maintain that the collaboration is primarily about education.

Signs that the learning aspect is becoming too thin

A few signs consistently reappear. The intern works largely independently. There is no clear, structured supervision. There are no concrete learning objectives or demonstrable progress on them. The intern performs the same work as regular team members. Or the company simply relies operationally on this person to help meet deadlines. Especially in tech companies, where teams are small and roles can be informal, this is a classic risk profile.

It's not unusual for an intern to improve and become more capable over time. However, this doesn't mean an internship can subtly evolve into an employment contract without explicit action. Such a silent transition doesn't align well with legal certainty. For growth companies, this is an important point: if the role changes, the legal and tax structure must change along with it.

Tax-wise, not every intern is the same

From a tax and legal perspective, interns are not all treated the same. The shared source indicates that, for payroll taxes, there are roughly three categories: the intern who qualifies as an employee, the intern who falls under deemed employment, and the intern who is not in actual or deemed employment at all. This is crucial for startups and scale-ups, as each category comes with different withholding and remittance obligations.

The intern who is actually an employee

If an intern receives market-rate compensation for their work, then actual employment is likely. The source also states that the Tax Authorities take the position that it is no longer an intern, but an actual employee, if at least the youth minimum wage is paid. Conversely, it can also go wrong: someone might receive only a modest internship allowance but works a full workweek and bears the same responsibility as regular employees. In such cases, employment status can still apply, entitling them to at least the minimum wage or potentially a higher collective labor agreement wage, plus the associated payroll taxes.

For startups, this might be the biggest pitfall. A low allowance feels informal and "startup-like," but the legal classification doesn't solely consider the amount. The actual content of the work carries significant weight. An "intern" who is effectively a junior employee will not remain outside labor law or payroll taxes simply due to a low internship allowance.

The intern with an internship allowance in deemed employment

There is also an intermediate category. If someone is interning as part of their education and receives an internship allowance that is not market-rate, this can constitute deemed employment. In this situation, the allowance is at least subject to wage tax. At the same time, wage tax and employee insurance contributions do not always align here. Interns in deemed employment are subject to different rules for premiums and insurance than regular employees.

For interns residing in the Netherlands, the source indicates that national insurance contributions are also generally withheld from the internship allowance. However, this deemed employment does not entail the same package of employee insurance as for a regular employee. The source explicitly states that no unemployment (WW) or disability (WAO) premiums need to be paid, while the employer's contribution for the Health Insurance Act (Zorgverzekeringswet) does apply. This difference is precisely why interns should not be automatically processed in payroll administration from a tax perspective.

The intern with only a genuine expense reimbursement

On the other hand, there is the intern who only receives reimbursement for actual expenses incurred, or even no compensation at all. In these cases, according to the source, there is no actual or deemed employment. This sounds simple, but the line is sharp. An expense reimbursement must genuinely remain an expense reimbursement. As soon as more is paid than the actual costs justify, the arrangement can shift and still incur tax consequences.

This is practically relevant for startups. Many companies reimburse travel expenses, lunch, hardware, or a fixed expense allowance without precisely documenting how that reimbursement is structured. This is precisely where you need to be careful. Ensure you can explain which costs are reimbursed, why the amount is appropriate, and how it aligns with actual costs or permitted legal standards. Even if an internship allowance is paid directly to a school or internship fund, diligence is required. This can work out well under certain conditions, but only if the allowance does not indirectly benefit the intern and is properly documented administratively.

The biggest startup mistake: viewing employment law and tax matters separately

In practice, employment law and tax matters are intertwined here. As soon as an intern legally qualifies as an employee, this has implications not only for payroll taxes. Minimum wage, minimum holiday allowance, dismissal protection, and a transition payment can also come into play from the very first day of work. Furthermore, an intern can invoke the legal presumption of an employment contract, which lightens the burden of proof for the worker. For a fast-growing company, this can become a troublesome issue, precisely because the internship often started with good intentions and few formalities.

For founders, CFOs, and people teams, the lesson is clear: don't just look at the amount of the internship allowance, but always also at the content of the work, the level of supervision, and the intern's place within the organization. A tax-compliant allowance won't save you if the internship is essentially just work. And a proper internship agreement won't save you if the payroll treatment doesn't align with the actual situation.

International interns require extra rigor

For international startups and scale-ups, there's an additional layer of complexity here. With international interns, assessing insurance obligations and deductions becomes more complex. Factors include: where the intern lived before their studies, whether their stay is within or outside the EU, how long the intern stays in the Netherlands, and whether the allowance is more than a pure expense reimbursement. A paid internship can therefore trigger Dutch insurance and tax implications more quickly than many companies anticipate.

The source also indicates that, under certain conditions, there is scope to keep an allowance for international interns outside of payroll taxes, but only if strict conditions are met. These include a limited duration of stay, the fact that the student is primarily engaged in their education, substantiation of costs, and a statement from the educational institution detailing the program, internships, and a detailed internship curriculum. For startups, this primarily means: international internships are not a copy-paste of Dutch internships. Here, the documentation truly needs to be impeccable.

From internship to contract: establish a clear boundary

Many startups use internships as a stepping stone to a first job. This can work excellently, but it's precisely then that you need to be meticulous with administration. If the intern is hired after the internship, their classification changes to a genuine employment relationship. This requires a clear transition in contract, payroll administration, and premium setup. The source explicitly states that a new income relationship must be entered into the payroll administration if someone first works as an intern and then becomes an employee.

The type of contract also matters. A temporary contract has different premium implications than a written employment contract for an indefinite period. Regardless of the exact percentages, the practical message for scale-ups is clear: if you convert an internship into employment, you must not only make a new offer but also reassess your payroll setup. Failing to do so creates unnecessary risk at a stage when the company aims to scale up further.

What you, as a startup or scale-up, need to have arranged now

An internship policy doesn't have to be cumbersome, but it does need to be deliberate. In practice, it helps to meticulously organize a few basics beforehand:

1. Document the learning objective of the internship and why the tasks align with it.
2. Work with an internship plan, supervision, and demonstrable feedback moments.
3. Check whether the allowance is truly an expense reimbursement, an internship allowance, or effectively wages.
4. Ensure the payroll treatment aligns with that qualification and reassess it as soon as the role changes.
5. Set up a separate administrative file for international interns, including cost substantiation and documents from the educational institution where necessary.

Conclusion

For startups and scale-ups, interns are often valuable, sometimes even indispensable. However, especially in young, fast-moving organizations, the line between learning and contributing quickly blurs. Therefore, anyone employing interns must not only consider talent and team fit, but also the legal classification of the work and the tax treatment of the allowance. This prevents a good entry route from later developing into an employment law and payroll-technical problem.

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