What is Leave Sharing ?
A leave donation or leave sharing program is a special type of program, employers allow employees to donate some of their accrued paid leave time to other employees who have already used all of theirs but who need additional hours or days to cover an emergency.
Typically, in this type of program, the donated leave is placed into a leave- bank. When another employee runs out of paid leave time but still needs time off, he or she can request or formally apply to use some of the leave available in the donated leave bank. Employers determine in advance what criteria must be met for an employee to be approved to take some of this leave and then apply those criteria to each applicant.
Why Have a Leave Sharing Program?
There are benefits to having such a program. Not only does it allow goodwill between coworkers, it also can reduce turnover by finding ways to keep employees on board who have run into difficult times and run out of leave. This becomes possible without costing the company more money in terms of the total number of employee absences taken (in some cases). Overall, this can lead to improved morale, especially during times of medical or other emergencies in which the leave is needed.
Implementing a Leave Sharing Program: Employer Considerations
While there are benefits to implementing such a program, it’s actually quite a bit more complex than it may seem on the surface. Here are some of the many things to consider before implementing a leave donation program:
- There are IRS implications for both the donation and the receipt of this leave, and the exact details depend on how the program is set up. Employees should be sure to understand this. The recipient of the leave may owe taxes on it, for example, and if the program does not meet IRS guidelines, the employee who donates the leave may also have tax implications in some cases.
- For taxation benefits, the program must be set up in such a way to meet IRS guidelines. If you’re considering setting up such a program, be sure to consult legal and/or tax guidance to ensure you’re setting up the program in such a way to meet the requirements. Generally speaking, these can be set up to allow employees to take extra leave in the case of medical emergencies or major disasters, but there are rules around each of these to qualify for special tax treatment.
- States also have varying laws in terms of what types of leave can be donated to such a program. This relates to whether specific types of leave, such as sick days, are considered to be accrued or vested leave in your state. Be aware that using leave for this type of program may change that leave’s status in the eyes of the law, such as making it count as accrued or vested time, even if it would not have before. As such, be sure to look into state requirements before creating such a program, and look at the ramifications of using it across state lines. Consult legal counsel if necessary.
- If you have any benefits that are dependent upon income levels, remember that the recipient’s income level may be affected.
- This type of program could also add a risk of discrimination claims for the employer if the applications to use leave from the leave bank are not administered fairly and consistently.
- Employers need to be aware of the cost implications. For example, if an employer has a “use it or lose it” policy, and an employee donates leave that would otherwise have been “lost,” that amount will later need to be paid out—while if it had been lost, the company would have avoided that payout.
- There are also cost implications if higher-paid employees take more of the donated leave time, thus increasing the cost of the day taken. (Assuming the leave was donated by an employee who has a lower salary than the one who takes it.)
- Employers should take care to ensure that employees who donate leave still take enough time off work for their own purposes.
Employee Benefits of Participating in an Eligible Leave-Sharing Program
There are several reasons why an employee would choose to donate. Most importantly, the ability to donate accrued paid hours of leave allows an employee to help coworkers recover from family or personal medical emergencies in a manner that does not require a cash distribution. An employee who has been affected by a personal or family medical emergency or major disaster may not have enough accrued time to tend to the emergency. The ability to draw from a bank of paid leave donated by other employees gives a little extra time that otherwise would have to be taken unpaid, which would add to the already high burden of recovery.
In addition, donated hours of paid leave pursuant to an eligible medical emergency or major disaster leave-sharing program are not included in the donating employee's income for tax purposes. Thus, for employees in states that allow companies to have "use-it-or-lose-it" policies, employees that might have unused leave that would be lost can instead donate it without any adverse tax consequences. However, employees are also not entitled to claim charitable contributions for income tax purposes for making such donations. Also, any wage-based benefits such as disability, retirement or life insurance may be affected negatively for donors and positively for recipient employees.
