Companies active in the CSR space are generally very familiar with the concept of disaster relief. They create campaigns and devote time, energy, and funds in targeted efforts to help those in need following a disaster. And from our research, we know that Disaster Relief campaigns are a powerful way to engage employees. From our 20161 and 20172 Industry Reports, we learned that 79% of disaster relief donors are first-time program participants and that 65% of those first-time donors return to the platform within the year to make an additional engagement. Disaster Relief campaigns engage employees and enable them to make a difference both globally and in their own communities. But what can companies do when one of their own employees is the victim of a disaster or sudden financial hardship and is in need of help? A company can set up an Employee Assistance Fund. Employees can make donations directly to a fund that supports the program and the employees in need can apply for assistance and relief.
There are many components that go into setting up and providing an Employee Assistance Fund. First, you have to make sure your employees know the program exists and know how to apply to it if they ever needed assistance. You will also have to make sure that the fund and its assistance is in compliance with all legal guidelines. How assistance is awarded could result in tax implications upon the recipients.
We are going to walk you through some of the tough decisions that come along with starting employee assistance funds. We hope this tool helps to simplify the numerous steps involved in the process and helps you make the best decision in regard to your recipients and company.
The Program Structure
You’ll need to think about where this program will live at your company. For some companies, the Human Resources team owns the Employee Assistance Fund. For others, it’s the Corporate Social Responsibility team. Either way, to make sure employees know about the program, are supporting the program, and are utilizing the program if needed – it requires multi-team function.
You’ll have to decide how the program is funded. It can be through 1) individual donations from fellow employees, 2) company funds, or 3) a combination of both. The various options the company has for initiating and managing such an effort will help guide that decision.
You’ll also have to decide who qualifies for the program (all employees, only full-time, etc) and what will qualify for assistance. Creating guidelines and clearly communicating them to employees is an important part of the program structure. We recommend having your legal team review your guidelines before publishing them.
The Legal Structure
You’ll have to think about the legal structure of the fund that supports the program.
Let’s look at some of the options:
A Private Foundation
The first route a corporation could take for making charitable contributions could be setting up a private foundation. They would be responsible for establishing the foundation, opening and maintaining the foundation, and managing the foundation’s various funds. While this private foundation could, in fact, make relief grants to employees in need for certain “qualified” disasters (i.e. disasters declared by the U.S. president or by FEMA (Federal Emergency Management Agency), it couldn’t legally make grants to employees for cases of individual financial hardship. Other things to consider are the financial and operational resources needed to set up and manage a private foundation.
Here is the breakdown:
- The IRS considers donations made to the qualified fund to be charitable.
- Employees cannot donate to a private foundation in support of the employee assistance program.
- Private foundations require a lot of legal qualification, typically creating a long and expensive process for corporations.
A Public Foundation
If a corporation chooses to manage its employee assistance fund through a public foundation, the company’s responsibilities would be similar to those of one using a private foundation. Some financial and operational responsibilities you should anticipate when starting a public foundation include establishment effort and costs, operational costs, fund management, and fund transfers to recipients.
Here’s the breakdown:
- Employees can make donations to the foundation in support of the employee relief program.
- If your corporation already has a foundation in place, you may want to consider this option.
Direct Corporate Funding
While it may not look like the most attractive option, a corporation can elect to impact employees directly by gifting grants from corporate funds. Employees that choose to support the fund will have their donations taxed. Additionally, employees that receive support from the corporate funds would be required to pay taxes on the award and the corporation would not be able to qualify their gifts as a charitable donation with the IRS.
Here’s the breakdown:
- Employees receiving support have to pay taxes on the award.
- Your corporation can’t qualify their gifts as a charitable donation with the IRS.
- Employee donations will receive additional taxation.
Third-Party Disaster Relief Fund
Employee disaster relief specialists are nonprofit organizations that establish employee relief funds on behalf of corporations. These specialists take on the heavy lifting that is involved in setting up a fund and make sure that the program is in legal compliance. Once the fund is in place, both the corporation and its employees are able to make tax-free contributions to the employee assistance fund. Unlike in Direct Corporate Funding, relief grants given to recipient employees are considered charitable by the IRS and can be written off by corporations.
There are many more benefits to incorporating a third-party organization in your company’s employee assistance program than just tax exemptions. When utilizing many of these third-party organizations, they can also help manage the application process, assist in the relief decision process, and finally distribute assistance during the awards process. When choosing a third-party organization to set up a fund on your behalf, there may be seed funding requirements or additional charges. Be sure to ask about all pre and on-going funding requirements when vetting these organizations.
Here’s the breakdown:
- Contributions to the fund are tax-free.
- The IRS considers relief grants given to employees to be charitable.
- There may be seed funding requirements or additional charges that come along with a third-party organization.
If you are considering going the Third-Party Relief Fund route and are stuck on which organization to choose, YourCause can recommend some great options for you! Just reach out to your account manager or firstname.lastname@example.org.