Practice Management Alert

Question: We heard of practices closing for a week during Hurricane Florence. How should we prepare different options for handling employee pay and leave if we’re affected by a natural disaster?

Virginia Subscriber

Answer: Navigating pay and leave during a natural disaster can be tricky for many reasons, including changing federal and state tax laws.

“Employers generally may adopt temporary paid-time-off [PTO] policies for employees affected by a qualified disaster. Such PTO will continue to be treated as wages for income and employment tax purposes,” say Marc-Joseph Gansah, an associate in the Employment, Labor and Workforce Management practice, and Gretchen Harders, member of the Employee Benefits and Executive Compensation practice, at the New York office of Epstein Becker Green, in a blog post.

“Employers may also be able to provide reimbursement for certain expenses that could be considered working condition fringes, such as transportation to a temporary emergency working site, evacuation assistance, or similar types of expenses. These expenses should, however, be reviewed on a case-by-case basis to determine whether the working condition fringe rules are satisfied,” they say.

Another option may be leave-sharing, where employees are allowed to donate PTO, sick leave, or vacation to one another, Gansah and Harders say.

“There are two types of programs: (i) one in which employees offer leave directly to co-workers impacted by a presidentially declared disaster and (ii) another in which employees donate leave to an employer-designated public charity or private foundation.

“Under IRS Notice 2006-28, leave donated to a co-worker will not be taxable to the donor but, rather, taxable to the recipient when the leave is taken, if made under a ‘major disaster leave-sharing program,’ which is triggered when there is a major disaster declared by the president under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (‘Stafford Act’) or a major disaster or emergency affecting a sufficient number of federal employees. This is a different definition than a ‘qualified disaster’ under Section 139 of the Code,” they say.

However, to meet the IRS requirements, your practice must have a leave-sharing policy in writing that addresses various components of the leave-sharing program, which you can find at the link below. Your practice can still employ leave-sharing without the written policy stating those requirements, except the leave donated is then taxable.

See more information here: https://www.ebglaw.com/news/hurricane-harvey-and-tropical-storm-harvey-what-kind-of-relief-may-employers-offer-to-affected-employees-what-about-hurricane-irma/.