24 Dec Paid Leave Donation
A leave donation or leave-sharing program is a voluntary, employer-offered benefit that allows employees to donate accrued hours of paid leave (vacation, sick leave, etc.) to a “leave bank.” Other employees can apply to receive the donated, paid leave hours when they experience a medical emergency or major disaster and have exhausted their other available paid leave.
Federal law does not require employers to have leave donation or leave-sharing programs; however, some federal considerations when implementing such a program include:
- Wage and hour compliance under the Fair Labor Standards Act (FLSA).
- Non-interference with an employee’s rights under the Family and Medical Leave Act (FMLA) when donating leave.
- Federal tax liability on the assigned income of an employee who donates their accrued but unused paid time off under an employer’s leave-sharing donation program (see IRS Letter No. 200720017 in Additional Resources).
- Federal tax consequences for leave donation programs when they’re used by employees because of a major disaster.
- Whether the program is an employee welfare benefit plan subject to Employee Retirement Income Security Act (ERISA) compliance obligations.
- Compliance with the antidiscrimination protections of the Genetic Information Nondiscrimination Act (GINA) and the Age Discrimination in Employment Act (ADEA).
State and local laws may also regulate an employee’s ability to donate paid time off.
Developing a Leave-Sharing Program
Before introducing a company-wide program, employers must create a concise, written policy outlining all aspects of the leave donation, as well as the application process (to donate or receive leave). The program should not be created on an impromptu basis. Additionally, a standardized application (paper and/or electronic format) should be used to ensure all employees are required to provide the same information. The policy and application should be distributed to the entire workplace (electronically, by paper, and/or in the employer handbook) without discrimination. Privacy is also paramount when developing and implementing a program where employees are providing information about their medical condition.
Employers should consider the following when creating a leave donation program:
- Impact to leave recipients:
- Using donated paid leave should only be allowed when the requesting employee has exhausted all their own accrued paid leave.
- An employee’s application to use the leave should include the specific reasons detailing why they’re requesting additional paid leave from the leave bank.
- Throughout the application process, an employee’s privacy should be priority, especially when they’re providing information about their medical condition. For instance, under the Americans with Disabilities Act (ADA), all employees’ medical information, including details about a disability and related leaves, must be kept confidential while administering a leave donation program.
- Impact to leave donors:
- The donor employee may not designate a specific person to receive their donated leave, and they should not donate more leave than they normally accrue during the year.
- There should be reasonable limits on the number of hours of paid leave an employee may donate so that they retain some for themselves, on how many hours of paid leave an employee may receive, and on the amount of time between when an employee can receive donated hours and when the leave-triggering event happened.
- Set a reasonable time when the donated leave can be returned to the donor employee if it’s unused.
- Ensure that donor employees’ privacy is respected.
- Financial implications:
- Paid leave must be paid at the employee’s normal pay rate, even when the leave is donated.
- Donated leave may impact wages and other wage-based benefits such as life and disability insurance.
- Budget for creating, implementing, and maintaining the program.
- Employers should consult legal counsel with concerns or questions about creating the program and whether it qualifies for special tax treatment under the IRS guidelines.
Original content by the Mineral Platform. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.