Creating a Leave or PTO Donation Policy

When a community deals with a natural disaster like a fire or a hurricane some are affected worse than others.  Same goes for serious illnesses or a long-term injuries.  Within the workplace many times employees want to help their co-workers and have the opportunity to support them during hard times. Your company can help them help others!  

PTO donation or leave sharing programs allow employees to donate accrued paid time off (PTO), vacation or sick leave to a general pool.

This pool is to be used by:

1) fellow employees who experience medical emergencies and have exhausted all paid leave available to them.

2) who are affected by major disaster, such as Hurricane or Wild Fire (See more about IRS special hurricane relief support).

This type of benefit program enhances employee morale and camaraderie by providing them an opportunity to help co-workers in need without using their present disposable income. Additionally, these creative and employee-friendly programs create a positive work environment and can contribute to improved recruiting efforts and the ability to retain quality employees.

4 steps to set up your PTO donation policy

PTO donation or leave sharing programs allow employees to donate accrued paid time off (PTO), vacation or sick leave to a general pool.

STEP 1:  Decide on the reason for the PTO donation

1. 1. Medical Emergency Exception reason
   2. Major Disaster Exception?  
   3. Or both

Definition of Medical emergency leave and Major Disaster Leave

Medical emergency exception - A “medical emergency exception” is defined as a “medical condition of the employee or a family member that will require the prolonged/extended absence of the employee from duty and will result in a substantial loss of income to the employee due to the exhaustion of all paid leave available, apart from the leave-sharing plan.” See Private Ruling Letter, Rev. Rul. 90-29, 1990-1 C.B. 11.

Major disaster exception- A “major disaster exception” is defined as a disaster declared by the president under §401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the Stafford Act) or as a major disaster or emergency declared by the president pursuant to 5 U.S.C. §6391 for federal government agencies. Once the president declares a major disaster as stated above, the IRS allows leave donations to employees affected by the disaster without negative tax consequences to the donor(s). See IRS Notice 2006-59.

STEP 2: Consider Budget Implications  

Employers should consider certain plan design features which will help assist in budget planning with information on cost control options.  For example, Donor Eligibility, Donation Caps, Recipient eligibility, Recipient amounts as well as the Value of the Donated Leave.  

STEP 3:  Design, Create and Publish your Program

Common considerations when designing the program are:

1. Ensuring neutral eligibility criteria is applied equally across all employee groups to avoid claims of discrimination.
2. Determine the possible effect on Short Term or Long Term Disability benefits, Paid Family Leave laws, etc.
3. Ensure Employee Privacy is protected (such as omit employee's medical condition from announcement of the need for donations).
4. Ensure the policy is written and includes a clear explanation of ALL parameters established.
5. Establish your tracking procedure.  OnePoint’s Time and Attendance Module can track a program such as this by setting up earning codes and rules to reduce PTO when requested for donation with easy tracking capabilities for each donation reason which would not transfer to payroll.  Then, access a special report to see what the employees donated.

STEP 4:  Implement and Roll Out Plan

Determine who will be responsible with administering this leave program.  Create Donation Request forms such as a donation application, authorization and request forms and define any necessary workflow processes for approvals; for example, department managers, HR, CFO, etc.

Decide what the communication plan will be  to encourage participants to utilize its benefits.

Additional Resources:

You can access more information on setting up a PTO donation program and see some sample policies by logging into OnePoint’s HR Support Center.  SHRM members can also access some great resources to assist creating these policies by logging into the SHRM website.