Donating PTO/EIT hours to other employees

njs · November 2002

Are there wage/tax implications for a policy which allows employees to donate portions of their unused sick or vacation leave to other employees?

KDowney · November 2002

Per the IRS Revenue Ruling 90-29, the only wage/tax implications are for the employees who are actually using the donated PTO/vacation time. The employees that donated the time don't incur any liabilities. The text of the ruling is:

[url]http://www.taxlinks.com/rulings/1990/revrul90-29.htm[/url]

If you are thinking about setting up a leave donation plan, the following checklist might be helpful:

[url]http://hr1.blr.com/c4/Checklists/lvbnkplcy.doc[/url]

njs · November 2002

I thought that I had read recently something about tax implications if, for instance, a $20/hr employee donates to a $7/hr employee. Anything to that?

Terri B · November 2002

We have this same policy and all of the tax implications fall on the recipient when they actually use the PTO. It doesn't matter what the conversion factors are (your example of $20 to $7).

KDowney · November 2002

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What you may be thinking of is the liability expense that is recorded on the company's books. If you have a PTO program where employees earn their time on an accrual basis. Then yes, the value of the PTO time for a $20/hr employee will be different than for a $7/hour employee.

For accounting purposes, the correct way to set up a PTO donation program would be to take the number of hours the donating employee wants to donate, and multiply it by his/her hourly rate. Than that dollar amount gets put into the leave sharing pool. When another employee needs to use the donated time, you would take the dollar amount of X and divide it by their hourly rate to figure out how much PTO time to pay them.

Ex:
Susan makes $20/hour and wants to donate 30 PTO hours to the leave sharing pool. $20 X 30 = $600 contributed by Susan to the leave sharing.

Ann then needs to use some of the donated time because her own PTO or STD (whatever) has run out. Ann makes $10, so in order to get her to a whole paycheck she would need $400. ($10/hr x 40 hour work week). You would pay Ann out 40 hours of PTO at her $10 rate. That would reduce the donated leave pool by $600 - $400 = $200. So there would still be $200 left in the leave pool should Ann (or anyone else) need to utilize it.

If you are on accrual basis for your PTO program, then it is important to equate the donated hours to dollar amounts, since you have already incurred the dollar liability of the PTO on your books. You need to make sure the expenses are recorded properly, otherwise your PTO liability expenses won't be an accurate representation of what the company's PTO costs are.

Donating PTO/EIT hours to other employees

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