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.

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