Donated Sick Leave Bank

jem626 · December 2007

Does anyone have experience with a successfull donated sick leave bank program? We have a lot of very long time tenured employees, and one or two battling cancer. Some people have asked if they can donate their unused leave to the people who need it more, and I'm looking for guidance on how to set it up, how to administer it fairly, and how to keep the one or two chronic "I need a day off" folks from mis-using it. Are there IRS complications, or FMLA complications?

hr410 · December 2007

I would look at things like:

• Eligibility: Your policy needs to state who is eligible for using leave bank time. Are only employees who donate leave to the bank eligible? Are only full-time employees eligible? Are part-time employees eligible on a pro rata basis? Is enrollment required? What if the employee has "wasted" his or her own leave time? Does there have to be substantial time off? Is the potential for a substantial loss of pay required? Must the employee have been absent for a certain number of days? Does all other paid leave have to be exhausted? Is eligibility automatic or must certain factors be weighed?

• Documentation: What forms must be completed to donate time? What forms are needed to apply for leave bank time? What medical information is required?

• Coordination: How is the leave bank coordinated with other benefits such as FMLA, reasonable accommodation under ADA, short-term disability pay, long-term disability pay, and workers’ compensation pay

• Donations: Your policy should address how employees donate time to the leave bank. Can they donate only sick leave or can they donate any type of leave? Is there any limit to the amount of time that can be donated? Can time that is about to be lost be donated? Can time be donated for a specific person? A specific ailment? A specific position? If time is donated for a specific person and that person does not use it, what happens to the donated time? Can it be used for others? Is it returned to the donor? Does it expire?

• Use: What are the purposes for leave bank time? Personal medical leave? FMLA leave? Personal leave? Combinations? Can a supervisor use time donated by a subordinate? Can leave bank time be used one hour at a time? One day at a time? One week at a time?

• Limits: Is there a limit on the leave time that a person can use? Is there a maximum limit that can be accumulated in the leave bank? Does leave donated to the bank ever expire?

• Value: What is the value of the time donated? Are all hours equal? If a person who is paid $20 an hour donates one day, does that translate into two days of leave for an employee who is paid $10 per hour?

• Conflicts: What happens if two employees are eligible to use banked leave, but there is not enough to cover both? Does one get it? Do they share? Does the company solicit donations of more time?

• FLSA. Requirements that exempt employees must take a full day off rather than only a few hours.

• Leave calculations. Whether the leave will be “hour-for-hour,” regardless of pay scale, or will be calculated by wage, and ensuring that recordkeeping accounts for leave under the Family and Medical Leave Act.

jem626 · February 2008

Thank you, this has been VERY helpful.

TXHRGuy · February 2008

Nice list!

Here are a couple more items to consider.

Eligibility is a messy place. If you stipulate anything about how sick the person has to be in order to be a recipient of donated sick leave, you open yourself up to issues surrounding inquiries that are proscribed by ADA. If you require FMLA leave, you risk creating FMLA abusers out of people who ordinarily may not have been abusers. Additionally, forced concurrent use of leave may not be consisitent with your other policies, perhaps extending sick leave time beyond the 12 weeks required under FMLA. If you use a committee to decide which situations merit it and which don't, then you increase risks associated with disparate benefit allowances provided to people who were in the very same situation, which could result in discrimination or retaliation challenges even if the process is facially neutral (e.g., not enough leave left in the bank for the second person in the same situation but that doesn't stop them from feeling like they have been mistreated and concocting conspiracy theories). If, on the other hand, you base eligibility on donation, how much more than what was donated can a person use? Will the system remain actuarially sound if you allow them to take more than they put in? If not, you run into problems with disproportionate benefit awards. To be clear, the concern there is not that you would lose a case, it's that you may not get summary judgement in your favor if the aggrieved party is sufficiently convincing in their story about how they were wronged. If the person can't use more than they donated, why donate? Anyway, plenty of Companies have programs like this and they seem to work fine. My gut says it probably works better in large places that may accumulate large banks from anonymous donors.
FMLA has specific requirements about the type of information you can require (including FMLA certification) if the designated leave is paid unless your paid leave policies meet certain requirements stipulated in the regulations. You could end up either violating FMLA regulations or increasing leave periods un-necessarily.
FLSA requires that exempt employees must take a full day off for it to be unpaid (insert appropriate FLSA caveats here) and receive leave bank time only in full day increments to cover those periods. However, FMLA allows you to make partial day deductions to cover exempt employee FMLA absences. Would you allow exempt employees to cover these losses with partial day deductions from the leave bank?
Donation basis determines a lot about what kinds of problems you may face. The eligibility problems discussed above primarily focus on issues stemming from having a central bank that people donate into. Alternatively, you can stipulate that people may voluntarily donate to a specific individual. This is a safer route to go because the Company isn't making decisions about who gets what when. However, it's more open to collusion between employees. Imagine the situation where an employee gets an irritable bowel syndrome or chronic fatigue syndrome FMLA certification for intermittenent leave who makes a deal with another employee to give him a half day's pay for each day donated that the certified employee uses. If you think that's far fetched, consider it's analagous condition in sales departments that happens all the time. Employee A has a pending sale as he closes in on the deadline for making the next rung on the commission ladder. Unfortunately, this one sale will not do anything for Employee A. However, Employee B will go up one run on the commission ladder if he is credited with the sale. Employee B offers to pay Employee A cash for credit for the sale, typically around half the value of the additional commission earned. This, of course, is theft from the Company as it will be paying out more in commission than it would have had the two employees not colluded. It is a standard problem in sales groups and it is directly analgous to this issue with sick time donation.
Cost is another concern. What happens when your VP, HR uses banked time that was donated by individuals whose rate of pay is $10.00 / hr? This goes back to the actuarial viability of the program because it can contain hidden costs like this, which also touches on the issue of eligibility.

BarbieW · February 2008

We have gone around and around on donated leave banks a few times over the years, but in the end the administrative problems kept us from ever moving forward.

regdunlop · February 2008

you should read this IRS statement on leave-sharing arrangements. i clipped some it below but you can read it all at http://www.irs.gov/pub/irs-wd/0720017.pdf

"However, this general “assignment of income” rule does not apply to certain situations involving employer-sponsored leave
plans. One situation involves bona fide employer-sponsored (medical) leave-sharing arrangements. Another involves certain qualified employer-sponsored major disaster leave-sharing plans.

The first exception to this general assignment of income rule involves the bona fide employer-sponsored (medical) leave-sharing arrangement described in Rev. Rul. 90-29, 1990-1 C.B. 11. Under the plan in the ruling, employees who suffer medical emergencies may qualify to receive leave surrendered to the employer by other employees or leave deposited by its employees in an employer sponsored leave bank. The ruling holds that the amounts paid by the employer to a leave recipient pursuant to the plan are includable in the gross income of the recipient under § 61 of the Code as
compensation for services provided by that recipient to the employer. Rev. Rul. 90-29
further concludes that these amounts are considered “wages” for employment tax
purposes, including the Federal Insurance Contributions Act (“FICA”), the Federal
Unemployment Tax Act (“FUTA”), the Railroad Retirement Tax Act (“RRTA”), and the
Railroad Unemployment Repayment Tax (“RURT”), and for income tax withholding
purposes, unless otherwise excluded by a specific provision of the Code. The revenue
ruling also holds that an employee who surrenders leave to the employer or deposits
leave in the leave bank does not realize any income and incurs no deductible expense
or loss either upon surrender or deposit of the leave or its use by the recipient
employee. "

babaHR · February 2008

We had a donated leave program about 10 years ago, when we had far fewer employees. While the intent is noble, and it helped one employee who was hospitalized a long time with a difficult pregnancy and one who had cancer and eventually died, it was very problematic and difficult to administer, and after much deliberation among the top administrators, it was dropped.

jem626 · February 2008

Thanks again, folks. This has been great info and I very much appreciate the insights into the administration aspect.

Donated Sick Leave Bank

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