Q. We would like to set up an-sharing program in which employees would contribute unused paid time off to a “pool” that could then be used by other employees who have run out of paid time-off hours. Are there any issues we should be aware of in setting up an arrangement like this?
A. Any employer setting up a leave-sharing bank should be aware that complicated tax issues can arise unless the arrangement is set up to comply with IRS rules.
In this case, unless the arrangement provides donated leave only in the case of certain “medical emergencies” or major disasters as set out in IRS guidance, donated paid time off will be taxed to the donor, not the recipient.
This means that employees contributing paid time off will be taxed on paid time off that he or she has not received. Experienced benefits practitioners should be able to help you set up a program designed to avoid this result.