Employee interest in paid time off or paid leave banks has increased during the recent COVID-19 pandemic. In a recent ASE poll, 25% of organizations have a PTO donation program.

PTO donation programs allow employees to donate accrued paid time off (PTO), vacation, or sick leave to a general pool to be used by fellow employees who experience medical emergencies or who are affected by major disasters and have exhausted all paid leave available to them.

Employers need to consider several things before launching.

Financials – Can you incur the extra administrative costs? Do you have enough cash to pay out the PTO donated? 

Policies – Who can donate and how much?  Who is eligible? How do you apply? Define the approval process and who is responsible for the tax consequences.

Compliance – It needs to be fair and equitable, because perception of mismanagement may increase exposure to discrimination claims.

Governing – A donation plan can be complicated to administer, so, establish governance prior to implementation to mitigate undue risks.

Tax Implications – There is a general tax law concept that the individual who earns paid time off, and has the choice to receive it as income (use the time) or dispose of it (donate it), is still obligated to pay taxes on it. Therefore, any leave earned by one employee and donated to another would be taxable income to both parties. However, the Internal Revenue Service (IRS) allows for two exceptions in which leave can be donated without negative tax consequences to the donor – medical emergencies or major disasters.

On June 11, 2020, the Internal Revenue Service (IRS) released Notice 2020-46 to address the taxability of employer leave-based donation programs that aid victims of the COVID-19 pandemic.

There are three popular models:

Leave Bank – Employees anonymously donate PTO to a centralized account from which qualified recipients can apply to receive PTO according to the rules of the program.

Leave Sharing – Employees donate their PTO directly to a co-worker in response to a specific emergency as defined by the program.

Leave Donation to A Charitable Organization – Employees may donate the value of their unused or unwanted PTO to a charitable organization.

To get started, establish a cross-functional committee that includes representation from human resources, information technology, finance, legal, and from the employees and management. 

Creating and administering a PTO donation program can be complex, but it will likely be a valued addition to your company's benefit package.

Source: natlawreview.com