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.