“How can I help?”
It’s a question that many employees ask when a coworker or a coworker’s family member is facing a serious medical issue. One way that employers can facilitate assistance is to allow employees to donate time off to their coworkers who have exhausted all available leave.
At first glance, a leave-sharing program appears to be a win-win-win solution.
It’s a win for the employer because, according to the annual MetLife Study of Employee Benefit Trends, there is a strong relationship between employee loyalty and company benefits. And one of the key drivers of increased loyalty is an employer’s understanding of employees’ financial pressures.
It’s a win for the donating employee because it allows them to make a tangible difference in someone’s life and help to ease the burden of a struggling coworker.
It’s a win for the receiving employee because it removes the financial burden caused by lost wages and allows them to focus instead on coping with a serious medical issue.
But despite all of the positives, employers need to be careful when implementing a program like this. Some potential problems include:
- The appearance of discrimination and/or bias;
- The administrative challenges of overseeing the program; and
- The tax implications to both the donor and the recipient.
The tax considerations
According to Peter Alwardt, CPA, of Eisner Amper, in his article “Tax Considerations in Implementing Donated Leave Policies,” the urge for employees to help may come at a cost.
“Generally, a donated leave program allows an employee to donate accrued hours of paid vacation, person, or sick leave for the benefit of other employees who need more leave than they have available,” Alwardt writes. “However, an employee’s good intentions may have negative unintended consequences.”
Under the Internal Revenue Service’s (IRS) general tax rules, donated leave may still be taxable in the hands of the donor and the recipient. It depends on how it’s handled. It also depends on which state you’re in. “States have different rules regarding an employee’s right to various types of leave whether it is accrued, earned or unearned, or whether it is vacation pay, sick pay, or the catch-all ‘paid time off’,” cautions Alwardt. “An employer must be aware of what leave may be donated in each of the states in which it operates in order not to run afoul of state law.”
According to Alwardt, in order to be valid, a leave-sharing program should:
- Be in writing and be administered by the employer;
- Be created as a “leave bank” into which employees may deposit their donated leave and from which the leave will be distributed to the employees who request it;
- Specify that leave is to be used only for medical emergencies, which should be restricted to a major illness or medical condition of the employee or family member of the employee that requires a prolonged absence;
- Have a procedure in place for employees to make a written application for leave, which describes the medical emergency or condition. Any leave received by the employee through the program should be paid at the employee’s normal rate of compensation;
- Specify limits, if any, on the amount of paid leave time that employees may annually donate;
- Ensure that the leave transferred is actually used as medical leave by the recipient and is not simply liquidated and paid out in cash.
Implementing a valid leave-sharing program
Pamela Davis, director of human resources at Meredith College, implemented a catastrophic leave program in her organization that meets these criteria.
Each year, college employees may elect to donate a certain number of hours to a leave bank, and a committee, separate from the HR department, administers payouts from the bank on a case-by-case basis.
Introduced in 2007, participation in the program varies from year to year, but generally two or three staff members apply for the leave. And the majority of staff members are donors.
“24 hours is the maximum that a person can donate and there is no hesitation,” says Davis. “Staff like to be able to help their coworkers and it’s a wonderful benefit that doesn’t cost them anything. They’re not giving up paid time, so their salary and taxation continues at the same level.”
Joining the bank
At the beginning of the year, every employee of the college receives 96 hours of sick leave for the year.
After an employee has completed a minimum of one year of benefit eligible service, and has accumulated a minimum of 80 hours of sick and/or vacation leave, they are invited to join the catastrophic leave bank by making a minimum donation of eight hours of leave time to a maximum of 24 hours.
Once an employee makes a donation, he/she is a member of the bank and the leave balance available to him/her is adjusted. Employees do not need to re-enroll every year; however, if they choose, they may contribute an additional 24 hours to the bank during the annual open enrollment held in November.
The open enrollment in November forces employees to use their own leave time prudently. Since they are given their leave time in January and they need to have 80 hours accumulated before they can donate 24 hours, they’re forced to use their paid time off wisely during the year.
Requesting leave
In order to qualify for catastrophic leave, an employee:
- Must be a member of the leave bank;
- Must submit a request form and medical verification that the leave is medically required, as outlined by the Family and Medical Leave Act (FMLA); and
- Must not have been disciplined for leave abuse within the past year.
[Note: Other employers include the requirements that the employee not be on a probationary status, must have exhausted all PTO or other earned time available to him or her, and received the consent of his or her manager.]
Requests for a donation are made directly to Davis, who removes any identifying information and then forwards the application and supporting medical information to a three-person committee. She does not weigh in on the decision.
Generally, Davis says, the only time someone is disqualified is when they have abused leave. “We’ve had a few situations where it was clearly beyond the person’s ability to use their own time off wisely, but those have been very rare.”
Once the leave request is approved, Davis notifies the pay administrator who credits the requesting employee with that amount.
Maintaining anonymity
“Prior to implementing this program, staff were able to donate up to three days of leave directly to another staff member, who had to openly disclose their medical needs,” says Davis. “As you can imagine, that could be uncomfortable and some people were reluctant to share such a private matter and so they didn’t receive help.”
Other potential complications included supervisors donating leave to some employees and not others and, in situations where it was a supervisor who was having health issues, employees feeling compelled to help and supervisors feeling a sense of obligation to employees who donated leave to them, leaving to possible shows of favoritism in the future.
“We’ve eliminated much of that,” says Davis, “Anonymity allows confidentiality on both parts. The donors don’t direct who to donate to and those who have a need can maintain their anonymity.”
Administering the program
“It’s really not that difficult to administer,” says Davis. “It could be much more work. By applying it hour for hour keeps it simple. To be very accurate, you could assign a dollar value to the amount donated, based upon the donor’s salary amount, then deduct the dollar amount to be awarded from the pool, but we really haven’t found that to be necessary.”
Conclusion
A leave-sharing program is an employee benefit that not only alleviates employees’ financial pressures; it allows employees to help a coworker in their time of need.
“If you have an ongoing medical issue, such as cancer, 96 hours can get used up quite quickly,” says Davis. “And it’s nice to see everyone on the campus pull together and support someone, while allowing them to maintain their anonymity.”
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