Occasionally, an employer proposes including some group other than current employees in their disaster and hardship relief fund. On its face, this makes the charitable class broader than it would otherwise be. Remember that there is no requirement that an employer-sponsored relief fund cover employees alone. Grants can be made to individuals so long as they serve the organization’s charitable purpose, and adequate records are kept. For example, the IRS has specifically approved charitable organizations which provide aid to the family members of deceased policemen and firemen.
This means that employers can include non-employees in their relief fund, such as retired employees. Some organizations have considered other possibilities. Suggestions for additional eligible groups include workers who receive a 1099, independent sellers using a company’s services, and clients with a law firm. All of these are feasible, but with additional wrinkles that bear mention.
For all alternatives, remember that there must be some verification that the applicant is part of the charitable class. If the applicant is not a traditional employee, this information may be more difficult for the employer to verify. It is very likely that some record of the applicant’s relationship with the organization exists, but it may require additional or different processes to confirm.
Funds including retired and former employees must implement sufficient verification procedures. The company will need to access historical employment records to verify that the applicants in these cases are eligible to receive a grant as part of the charitable class. Considerations include length of service, how recently the applicants left the company, and the circumstances under which they leave (employers typically do not include terminated employees).
1099 workers include groups such as drivers with ride-sharing services like Uber and Lyft. Including these workers in a relief fund, along with traditional employees, is a feasible option. However, employers should be cautious about trying to limit which workers in these cases are eligible, particularly given the ongoing litigation involving employment status for 1099 workers.
Other companies may want to extend relief fund eligibility to certain service users. For example, an online marketplace might consider expanding eligibility to include an existing preferred sellers program. As with 1099 workers, this makes the class more open-ended, however, these companies should be mindful of the prohibition on serving the employer’s private interest. Limiting eligibility to only a select group of service users (high volume sellers, large accounts, etc.) could run afoul of that rule.
Law firms sometimes want to set up a relief fund for clients in need. While in theory this is possible, the reality is that state regulations differ wildly, and always address lawyers making loans and payments to clients. Some expressly forbid indirect payments to clients for things like living expenses, so firms should carefully verify whether their state ethical regulations permit this sort of relief fund. Further, note that federal tax regulations against providing more than a tenuous and incidental benefit still apply.
Author: Doug Stockham