PTO Donation: Supporting Colleagues Through Shared Leave

Learn how to implement effective PTO donation programs that allow employees to support colleagues in need while reducing your company's unused time-off liability. Discover three proven models, key implementation considerations, and step-by-step guidance for creating policies that potentially benefit both employees and organizations.

Paid time off (PTO) donation programs have existed for more than two decades, yet remain an underutilized way for employees to support one another without providing cash out of pocket. These programs allow employees to donate unused PTO to colleagues facing medical emergencies or affected by natural disasters, which can foster community while helping employers reduce liability from accrued but unused PTO.

With nearly half (46%) of U.S. workers not using all their PTO, according to Pew Research, these programs offer a practical solution for redirecting unused time to those in need.

The 3 common PTO donation models

Organizations typically choose from three common models:

1. Leave bank model. Employees anonymously donate PTO to a centralized account from which qualified recipients can apply based on program rules. This model allows for the systematic distribution of donated time to employees in need.

2. Leave-sharing model. Employees donate PTO directly to specific colleagues in response to qualifying emergencies as defined by the program. This model enables immediate support for coworkers facing difficult circumstances.

3. Leave donations to charitable organizations. Employees may donate the cash value of their unused PTO to charitable organizations. This option extends the impact of donations beyond the workplace.

Key considerations before implementation

Before establishing a PTO donation policy, organizations should evaluate several critical factors:

Culture assessment

Consider whether your company culture promotes giving and community support. The program should align with existing values to boost morale and foster camaraderie.

Financial implications

Ensure your organization has sufficient cash flow to support the program. Remember that both donors and recipients must be paid, plus any administrative costs for managing the program.

Compliance requirements

Carefully design the program to prevent discrimination concerns. Fair and equitable administration is essential, as perceived mismanagement could lead to discrimination claims.

Policies and procedures

Develop clear guidelines addressing:

Donation limits per employee
Eligibility criteria for recipients
Application and approval processes
Administrative procedures for transferring time
Responsibilities for tax implications

Tax considerations

PTO donations are measured by cash value and may have tax implications for donors and recipients. In most cases, donors must pay taxes on donated time, with limited exceptions that generally fall into these two categories:

Medical emergency programs: Must meet requirements for "qualified medical emergency leave" and "bona fide employer-sponsored leave-sharing arrangement" as outlined in Revenue Ruling 90-29 (Rev. Rul. 90-29).
Major disaster programs: Available to employees affected by presidentially declared major disasters per IRS Notice 2006-59 (Notice 06-59).

Governance structure

Consider establishing proper oversight before implementation to ensure consistent administration and risk mitigation.

How to get started

Follow these steps to help implement an effective PTO donation policy:

Step 1: Form a cross-functional committee

Consider creating a team with representatives from human resources, information technology, finance, legal, as well as employee and management groups. This committee should address questions such as:

What specific needs exist within our workforce?
Which donation model best suits our organization?
What safeguards are needed to protect privacy and help ensure fairness?
How will we measure program success?

Step 2: Evaluate your technology infrastructure

Assess your human capital management (HCM) system capabilities:

Can your system be configured to allow PTO donations?
Are employee base wages already captured to calculate PTO value?
What reporting capabilities exist to track donations and usage?
What system modifications might be necessary?

Step 3: Develop comprehensive policies

Written policies should address:

Program eligibility (both donors and recipients)
Donation limits and minimums
Application and approval processes
Documentation requirements
Privacy protections
Tax implications

Review these policies with legal counsel to help ensure compliance with federal, state, and local laws.

Step 4: Create an implementation plan

Develop a timeline that includes:

System configuration and testing
Manager and HR training
Employee communication and education
Program launch
Regular review periods

Step 5: Educate your workforce

Provide comprehensive information about:

How PTO accrual works within your organization
The purpose and benefits of the donation program
How to donate time and request assistance
Tax implications for participants
Privacy protections for recipients

Pitfalls to avoid

When implementing a PTO donation program, try to steer clear of these common pitfalls:

Insufficient communication leading to low participation
Lack of clear eligibility criteria creates a perception of favoritism
Inadequate privacy protections for recipients
Failure to address tax implications with donors
Overly complex application processes discourage usage

Administering your PTO donation program

While establishing and administering a PTO donation policy can be complex, it creates meaningful support systems within your organization. When properly implemented, these programs strengthen workplace communities while providing practical assistance to employees during challenging times.

Successful administration typically requires:

Consistent application of policies
Regular manager and employee training
Annual policy reviews and updates
Integration with time-tracking and payroll systems
Clear communication channels for questions

By approaching implementation thoughtfully and systematically, organizations can create PTO donation programs that benefit both employees and the company, making them a valuable addition to any benefits package.

Learn more

Register for and attend/replay this webcast anytime.

Navigating the paid leave maze: Insights and strategies in a changing landscape

Whatever your company's goals are, ADP has a human capital management (HCM) solution that can help. Robust workforce management solutions offer a wider variety of options and include features for planning, scheduling, absence management, and even work tracking.