Giving Grants to Individuals, Part 2: Employer-Related Programs

Crisis-SolutionBy:  Deb Nelson and Kim Hunwardsen

This is Part 2 in a series describing giving grants to individuals.  Part 1 was Considerations for Nonprofits Providing Hardship and Disaster Assistance.

During difficult times, employers can assist their employees by providing disaster/hardship assistance, administering leave-share programs, or administering leave-based donation programs.  Setting these programs up, however, takes careful advanced planning.

DISASTER/HARDSHIP PROGRAMS

If you’re an employer looking to provide disaster and hardship assistance to employees, take note that what you can provide will be dictated by how you are classified with the IRS.

If you already have charitable status, you have an advantage.  If you’re private or classified another way, however, there are several options to consider.  You can:

Make payments to employees outright without setting up a separate entity or fund.

Recipients will have to pay taxes on the payment unless it meets the requirements of qualified disaster relief, under IRC Section 139.

Establish an employer-sponsored public charity.

  • This set-up requires broad public support (e.g. employees must be encouraged to contribute, you hold fundraising events, etc.).
  • Employers cannot have excessive control over this new organization.
  • Recipient class must be broad and selection must be objective.

Establish an employer-sponsored donor advised fund.

  • Can only provide benefit to individuals who are victims of a qualified disaster described in Section 139.
  • Recipient class must be broad and selection must be objective using an independent selection committee.
  • No payments can be made from the fund to any directors, officers, trustees, or employees on the selection committee.
  • Adequate records to demonstrate need are required.

Establish an employer-sponsored private foundation.

Can only provide benefit to employees and family members who are victims of a qualified disaster described in Section 139; no payments can be made to officers, directors, and trustees.

LEAVE SHARE PROGRAMS

Creating a leave share program is a goodwill gesture employers can make that allows employees to donate hours of unused leave to a bank that can then be given to employees who may need additional time off due to medical emergencies, disasters, or deaths of close family members.  Before setting up such programs, employers should carefully plan for administrative complexity, as well as the potential that a jump in use could have an unplanned financial impact.

Like a disaster and hardship assistance program, medical emergency leave programs should be well-planned in advance of administration.  Here are some general guidelines according to the IRS; the plan should:

  • Be in writing and administered by employer.
  • Be created as a “leave bank” where employees deposit leave and from which leave is distributed.
  • Specify leave to be used only for medical emergencies.
  • Have procedure in place for employees to make written application for leave, which describes situation.

A major disaster leave program can also be established by an employer.  The requirements are:

  • Leave recipient may receive paid leave at his/her normal rate of compensation from leave deposited in leave bank, to be used for purposes related to major disaster.
  • Plan adopts reasonable limit, based on severity of disaster, on period of time after major disaster occurs during which leave donor may deposit leave in the leave bank and leave recipient must use the leave.
  • Leave recipient may not convert leave received into cash.
  • Employer must make reasonable determination, based on need, as to how much leave each approved recipient may receive.
  • Leave deposited on account of one major disaster may be used only for employees affected by that disaster.
  • Unused donated leave must be returned to donor within reasonable time, except in the event the amount is so small as to make accounting for it unreasonable or impractical.

In addition, tax implications exist for individuals donating and receiving the leave time.  Those who donate time cannot claim this as a charitable contribution and those receiving the paid leave will include it in gross income as wages.

LEAVE-BASED DONATION PROGRAMS

Employers have the option to set-up a program that allows employees to exchange accumulated and unused leave for the employer to make a cash donation to a charitable organization.  Though there are occasional exceptions made public by IRS announcements in the wake of disasters, generally, the leave is considered taxable compensation to employees and a compensation deduction for the employer. In the special exceptions to this, employees can exclude the donated leave from their taxable wages.

Giving Grants to Individuals, Part 1: Considerations for Providing Hardship and Disaster Assistance

Disaster ReliefBy:  Deb Nelson and Kim Hunwardsen

A flood.  A tornado.  The death of a close family member.  A medical emergency.

Each of these things can be catastrophic and devastating for the individuals impacted.

In these circumstances, the inclination is to act and act quickly.  For nonprofits and for-profits alike looking to provide hardship assistance – either to their communities or individual employees – advanced planning will help you ensure that you comply with IRS standards while providing a caring and timely response.

How do you prepare?  In our two-part series we will outline key planning considerations for:

  1. Nonprofits considering providing hardship and disaster assistance
  2. Employer-related programs

PART 1:  Basic Considerations for Providing Hardship and Disaster Assistance

What IS hardship and disaster assistance?

Hardship and disaster assistance means providing funds, services, or goods for basic necessities (food, clothing, shelter, transportation, medical assistance, etc.) to distressed and needy individuals who have encountered financial hardship for reasons beyond their control.  What’s “beyond their control”?  This could be serious illness or injury, fire, flooding, tornados, violent crime, and more.

How should we best prepare to offer assistance?

Make sure you establish written policies and procedures in advance to operating assistance programs.  These should do the following:

  1. Establish a “Charitable Class”: You need to identify a charitable class that is large enough and open-ended so the class cannot be quantified. This means, you can’t set yourself up to deliver assistance to one specific family or person, for instance.
  2. Establish a Method for Identifying Individuals in Need of Assistance: Reach must go beyond board member and employee contacts. Consider how you can “advertise” the help you’re providing.
  3. Create an Application Process that is Committee-Reviewed

If you’re a nonprofit and this is going to be a significant activity, you must also consider whether a disclosure is required on your Form 990.

What do we need to document?

This will vary depending on whether you are providing short-term or long-term aid.

For short-term aid, you will need:

      • Type of assistance provided
      • Cost of the aid
      • Charitable purpose accomplished
      • Criteria for disbursing assistance (how did you ensure that those who received aid were legitimately in need of aid?)
      • Date and place
      • Estimated number of victims assisted
      • Individuals names/addresses not required

For long-term aid, you will need:

      • Description of assistance provided
      • Cost for providing assistance
      • Purpose for which aid was given
      • Objective criteria for disbursing assistance
      • How recipients were selected
      • Name, address and amount distributed to recipient
      • Any relationship between recipient and officers, directors or substantial contributors
      • Composition of selection committee approving assistance

Evaluating Program Contribution – What is the Impact of Your Organization’s Programs?

HillestadBy:  Angie Hillestad

“You can’t spend the same dollar twice.” Nonprofit organizations know the truth of this old saying all too well. In a world where need far outweighs resources, determining which programs are right for your non-profit can be a serious challenge. Understanding the impact that each program has on your organization as a whole is vital to making well-informed operating decisions.

Mission Contribution

Evaluating mission contribution is a qualitative approach that may result in a little organizational “soul searching.” How well does your program align with your organization’s mission? Does the “who and what” of the program makes sense based on the “who and what” of your organization? Feedback from your stakeholders and evaluation of program performance measurements can provide you with valuable information to help determine if your program is making a difference and achieving a desired level of impact.

Financial Contribution

Evaluating financial contribution, on the other hand, is a quantitative approach that considers the financial impact of each program individually. Do you know the true cost of operating each program? Nonprofits commonly assess the collective performance of the organization (e.g. whether total revenues are sufficient to cover total expenses) but spend little time determining the financial contribution (or drain) of an individual program. How does the program’s revenue compare to its expenses? Does the program financially contribute to the organization’s bottom line, or are you using other organizational dollars to supplement its operations?

Assessment

You will generally find that your programs fall into one of four types:

1.  Programs that contribute to your organization financially and are strongly aligned with your overall mission are great for your organization.

  • ACTION: You should continue to operate these programs. Depending on your long-term goals, you might even consider evaluating these programs for potential expansion.

2.  Programs that neither contribute to your organization financially nor align with your overall mission are a clear drain to your organization. You are likely spending valuable financial and non-financial resources on a program that does little to strengthen your organization.

  • ACTION:  If you cannot feasibly make changes to these programs to bring them within your overall goals, you should consider developing a program exit strategy.

3.  Programs that are strongly aligned with your organization’s mission but have negative financial contribution will not be financially self-sustaining.

  • ACTION:  Your organization will need to allocate other resources to these programs in order for them to continue to operate. Consider whether more can be done to generate revenue from these programs.

4.  Conversely, programs that are not aligned to your organization’s mission but contribute to it financially will be self-sustaining (and may even generate revenue for your organization overall) but will not have a clear link to your organization’s overall mission.

  • ACTION:  Deciding what to do with these programs can be tricky. Questions to ask yourself might be: Can we generate additional revenue to sustain a high mission program that is a net use of organizational resources? Should we widen the scope of our mission to include programs that contribute to the bottom line? Maybe…or maybe not – you could find it is not be practical to make the changes needed to bring these programs perfectly in line with your organization’s overall goals. You might decide to continue to subsidize a high mission program with a negative financial contribution, if the program is central to your overall mission. Likewise, you might find that the positive financial contribution from a program that is not aligned with your mission provides enough benefit that the lack of link to mission is not that important.

Success to a non-profit organization is more than just a strong financial bottom line. Program contribution analysis gives your organization a strategic process to evaluate multiple programs and understand the contribution that each program makes to the overall organization – information that is critical to making smart operating decisions.

Evolution of Best Practices

By:  Deb NelsonDebNelson

Independent Sector recently updated their 33 Principles for Good Governance and Ethical Practices. As I reviewed the summary, I wondered how nonprofit organizations choose which set of “principles” they adopt. There are many organizations, nationwide and locally, that have disseminated information on what they believe to be principles of best practice or ethical standards for nonprofits. These generally include categories covering financial aspects, governance, fundraising and transparency.

Does your nonprofit follow principles recommended from a local state association? Do you go through a rigorous review by one of the dozen evaluators to obtain a seal of approval? Or have you developed your own guidelines based on a combination of sources?

At the end of the day, the over-riding purpose of principals is to ensure nonprofits are effective, successful, and responsible. As your nonprofit evolves, are you remembering to circle back to your adopted principles for a “check-up” and investigate areas that need tweaking? For example, if you have started a capital campaign have you reviewed those fundraising principles that may not have applied to you in the past? If you’ve moved to cloud-based technology, are you following best practices for data protection?