One of the greatest aspects of human nature is the willingness to help others in times of need. We see it time and time again: during a natural disaster, when a friend falls ill, or when news of another mass shooting is announced. People want to help make a difference in others’ lives, even if it is only in a small way.
Leave-sharing programs, leave-donation programs, PTO donation programs—no matter what you call them—can help employees feel like they are doing their small part in helping a fellow human being. Not only do these programs help benefit a colleague, they can also have a positive impact on the employer by raising employee morale, increasing productivity, reducing absenteeism, helping with attracting quality employees, and improving the employer’s brand image.
A leave-sharing program allows employees to donate or share time off (PTO, vacation, and/or sick time) with employees—or their family members—who are experiencing a major medical emergency. Leave-sharing is also sometimes used for employees who are in the wake of a natural disaster and lack adequate time off to use.
While this may sound like a simple concept, employers must develop programs thoughtfully so as not to create tax issues for employees, discriminations claims, privacy issues, and administrative complexity.
Considerations in Developing a Leave-Sharing Program
Type of Plan
Decide what type of leave-sharing plan you want to implement, as tax issues can arise under the constructive receipt rule, depending on the design. “Constructive receipt” is a tax-law concept where an individual who has received time off can either take the time off, receive it as income, and be taxed on it, or donate it and still be obligated to pay taxes on the value of the amount of time donated. There are two ways time can be donated without tax consequences to the employee donating the time. They are the medical emergency exception and the major disaster exception. Please consult a tax adviser for more information.
To avoid claims of discrimination, it is best to have employees donate to a general pool of time off to be used by employees in need versus allowing a donation directly to an employee. This will avoid favoritism issues that can occur when a well-liked employee receives an abundance of time, while a less-well-liked employee receives little or no time. If a protected class is involved, this situation could lead to a discrimination claim.
Draft a written leave-sharing policy that outlines all of the aspects of the program. Include clear definitions for eligibility, limits on donating or receiving, value, how to apply for the time off, and approval process. These plans should not be developed only when an employee has a medical emergency or when there is a natural disaster. This should be a well-thought-out program that provides value to employees during their time of need. Employers Council can assist you with this.
Donor – Define which employees can donate time; e.g., all employees or only employees in a specific class. Include requirements regarding being employed for a certain amount of time or having a certain amount of time off in their bank.
Recipient – Define which employees are eligible to receive time from the pool. Does the recipient have to have been employed for a certain amount of time prior to requesting leave from the pool?
Donor – Define what time off an employee can donate; e.g., vacation and sick, or sick time only. Keep in mind that vacation time is considered a liability for employers, while sick time is not. Require a minimum amount of time an employee can donate and provide a cap on the time to be donated. Make sure employees maintain a specific level of time off in their bank to keep for themselves.
Recipient – Define a minimum or maximum amount of time recipients can receive from the bank. Require the employee to exhaust all other time off available to them before requesting time off from the pool. Notify recipients they will not receive a cash payout in lieu of amount of time off provided.
Once you determine how much time can be donated and received, you need to address value. It is likely the employee donating the time off and the recipient will not have the same pay rate. Therefore, you must decide whether you will provide time off on an hour-for-hour basis no matter the difference in pay rate or on a value basis. For example, under the value method, a donating employee earning $40 per hour donates six hours of leave. This would total $240. The recipient employee earns $20 per hour and requests eight hours of leave, totaling $160. A remaining value of $80 would then remain in the pool. Under the hour-for-hour method, the recipient would only be able to use six hours of time off since that is the number of hours the donor provided. The leave will be paid at the recipient’s normal compensation rate no matter the method used to determine value.
Application and Review
Create an application process with neutral, non-discriminatory criteria for drawing time off from the general pool. Have a cross-functional committee review the application and use consistent criteria for awarding time off. Make sure privacy is respected during this process. Although the information included in the application process is not typically Protected Health Information (PHI) under HIPAA, it is likely the confidentiality requirements under the Americans with Disabilities Act (ADA) do apply.
Look at the financial impacts on the organization. Work with your finance team to understand the potential impact on cost projections and accounting liability. Implementing a leave-sharing program can result in an increase in use of paid time that might not have been taken previously. Employees that are used to carrying large balances of time off are more likely to donate extra time to a sharing pool, which, when used by an employee in need, increases cost projections. Putting limits on the amount of time employees can donate and the amount of time a recipient can take will help with cost projections.
Understand how time off received will impact other benefits of the recipient, such as short-term disability (STD) or long-term disability (LTD). Do the carriers allow employees to supplement or top up with time off to the employee’s take-home pay? Understand any state regulations that govern leave-sharing programs as they can vary. States may have different regulations regarding an employee’s right to different kinds of leave. Consult with legal counsel when implementing a leave-sharing program.
Ultimately, a leave-sharing program can be a great benefit to add to your company’s total rewards package. However, you need to take the time to determine if a leave-sharing program is right for your organization and your employee population. Remember, this can be a complicated program to implement. Make sure you are doing it for the right reasons and that you set it up correctly to avoid any pitfalls that might come with this type of program.