A core legal concept for relief funds is likely the charitable class requirement. The Internal Revenue Service states that “[a] charitable organization or trust must be set up for the benefit of an indefinite class of individuals, not for specific persons” (emphasis added). This requirement means that employer-sponsored relief funds, like all charities, cannot personally designate beneficiaries.
Defining the charitable class is therefore of vital importance, and that definition of course leads directly to the question of eligibility. Not only should the group eligible for a grant be indefinite, there must also be “an objective determination of need” – taken together, the two requirements mean the test must be one that impartially determines whether applicants qualify.
Since the charitable class must be indefinite, employee relief funds should be careful to avoid the appearance of serving a private interest when deciding who is eligible for a grant. The IRS states “it is necessary for an organization to establish that it is not organized or operated for the benefit of private interests.” Employer-sponsored relief funds serve a private interest if they are impermissibly serving the related employer. Also note that the charitable class must be “open-ended,” which for relief funds includes future employees.
Impermissible service to the employer means a benefit to the employer from the operation of the fund. Eligibility assessment procedures must limit benefits to the fund sponsor. Specifically, the concern is that the employer-sponsored program will improve hiring and retention. This is where waiting periods for eligibility to apply cause a problem. A waiting period, on its face, limits the charitable class to all employees who have been with the company for a certain period and are in need.
Click here to see original blog post on the Emergency Assistance Foundation website.
President, Emergency Assistance Foundation
The Emergency Assistance Foundation, Inc. is a 501c(3) charity created to design and operate multiple employer-sponsored disaster relief and employee hardship funds. These funds allow domestic and international employers and employees to help their coworkers in times of crises.
EAF is a 501c(3) tax-exempt, public, non-profit organization with IRS approval specifically for Employee Hardship and Disaster Relief Funds which can be administered in the United States, Canada and internationally.