FREQUENTLY ASKED QUESTIONS
Companies that have established Employee Hardship and Disaster Relief programs judge their success on two factors:
1) How many of their employees donate to the fund?
2) How effective they are in creating goodwill within the company and community. They often see 10 to 40 percent of their employees making donations while 1/2 to 1 percent of employees receive grants each year.
There are a number of distinct processes or steps to establishing and operating an effective Employer-Sponsored Employee Hardship and Disaster Relief Fund Program. Here are the basics:
a. An employer creates and names a custom fund within the Emergency Assistance Foundation, Inc. Establishing a fund is offered at no cost to the employer and is as simple as signing a simple Field-of-Interest agreement.
b. Donations are made by employee contributions (through payroll deduction, credit or debit card, check), by the employer (usually through a donation-matching program or direct contribution), by the employer’s foundation, and sometimes through fundraising events.
c. Employees complete applications for assistance, which EAF staff review.
d. Each application undergoes a preliminary review to ensure a qualifying emergency or hardship exists and that all required documentation has been received. The applicant will be contacted if additional information is needed.
e. Trained EAF personnel conduct final application reviews to determine if they meet the criteria established specifically for the company’s Employee Relief Fund. After the review, the grant requests are either accepted or denied based on the objective criteria. For approvals, the amount of the grant is determined.
f. Grants are paid directly to vendors and service providers on behalf of the employee applicant or directly to the employee applicant in accordance with the employer’s guidelines.
- Risk reduction via compliance with the rules and regulations of the IRS and the state where donations or grants are made
- Program design (including the necessary processes and design/operational considerations)
- Employee participation in donating and applying for grants.
- Ensuring donations from all sources: company, company foundation, employees, etc. are tax deductible
- Grants are tax free – all programs are designed so that grants are tax free
Under what circumstances an employee relief grant may be made differs depending upon if the event is a “Qualified Disaster” as defined in section 139 or an “Employee Emergency Hardship” often referred to as a “Personal Hardship.” IRS publication 3833 states:
A Qualified Disaster is defined as:
- Results from terrorist or military actions
- Results from an accident involving a common carrier
- A presidentially-declared disaster
- An event that the secretary of the treasury determines is catastrophic
An Employee Emergency Hardship is defined as:
- Any other permissible hardship other than a Qualified Disaster, which can range from house fire, serious injury or illness, death or a number of other events
In 2012, EAF conducted a comprehensive survey of more than 100 employee relief funds throughout the country. As a result, EAF used the information to create a “Best Practices Model” of the Employee Relief Industry.
We also found that while each company believed their programs to be successful, they were not knowledgeable of what other companies were doing in this field. This informational vacuum has created tremendous inefficiencies and even IRS compliance vulnerabilities. To learn more, please view our educational videos and read our white paper (An Environmental Scan of Disaster Relief & Employee Hardship Funds) under the Resources tab.
When a company gives employees a chance to donate to a worthy cause it increases their connection to the organization. This may seem counterintuitive, but research shows it’s true. It’s called prosocial motivation, which is the desire to protect and promote the well-being of others, and is distinct from altruism and independent of self-interested motivations. Interestingly, this is also true with Employee Relief Funds where the donor is more connected than the receiver.
a. Commitment of the organization’s leadership is crucial to the long-term (not just the launch phase) success of the program.
b. Research shows that the number of employees who participate is a greater indicator of program success than actual dollars donated. This is highly correlated to the effectiveness of the employee communication about the program.
c. How the program is structured and operated. It must be easy to use, tax-efficient and cost-effective.
d. Other significant success factors include:
- Customized program design – leadership endorsed
- An engaged employee oversight committee
- Tax efficient/optimized
- Broad and clear grant guidelines and eligibility
- Operational compliance
- Grant process and administration
- Integrated program with other departments
- Application participation targets
Industry benchmarks were developed from a review of information from more than 100 national Employee Relief Programs requiring over 1,000 hours. Some of the most significant are provided below:
- Donations are tax deductible in the U.S.
- Grants are non-taxable in the U.S.
- Program covers both disaster relief and personal hardship
- Program is in federal compliance for tax purposes
- State solicitation and registration met in each state where necessary
- Robust employee communications is maintained through all internal channels
- Advisory/oversight committee of 6 to 12 members is established
- Total Funding: 50% or more from employees
- Employee donation participation of 20% to 40%
- One-half to 1 percent of employees receive grants each year
- More than 90 percent of applications are approved
- Grant processes that include strong due diligence and vetting procedures balanced with the need to make grants quickly
- Average grant size is 20% to 30% of the maximum grant amount
- More than 98% of funds granted are made to vendors
The number of disaster and personal hardship events included in the program has a significant impact on the number of employees who receive assistance when they face a personal crisis. Making more events eligible also increases the connection between the employee and employer. The criteria chosen, in conjunction with the application’s design, ensure that any grant made will comply with IRS guidelines and regulations.
- Natural disaster such as a flood, fire, tornado, earthquake, hurricane, etc.
- House fires or unusual expenses not covered by insurance
- Serious illnesses or injuries to the employee or an immediate family member
a. Simplified list includes:
- The employer cannot control the fund excessively
- The beneficiaries of the fund must constitute a charitable class that is either indefinite or of sufficient size. (e.g. current and future employees)
- An individual’s employment with the company cannot be relevant except as an initial qualifier. Also, the individual’s employment status cannot affect the amount or type of aid provided
- The fund must be administered by a committee that either has no relationship to the employer or is a group of employees who represent a broad cross section of the work force. Further, members must understand that they are acting as individuals, not as representatives of the employer
- The fund must have specific, documented eligibility parameters that are objective and nondiscriminatory
- The charity must inform all employees of the existence of the fund and their eligibility for relief
b. General overview of expenses that can be covered:
- Reasonable and necessary personal, family, living or funeral expenses incurred as a result of a qualified disaster
- Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a qualified disaster (a personal residence can be rented or owned)
- Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a qualified, declared disaster
c. Qualified disaster relief payments do not include:
- Payments for expenses otherwise paid for by insurance or other reimbursements
- Income replacement payments, such as payments of lost wages, lost business income or unemployment compensation