A common, but mistaken, idea for employee disaster and hardship relief funds is to have an eligibility waiting period. In practice, this requirement would work by limiting applicants for grants only to those who have worked for the fund-sponsor for a certain time period. Most often, the suggested period is 45, 90, or 180 days. This approach will not work, due to both practical reasons and IRS restrictions on providing an impermissible “benefit.”
The idea behind a waiting period is to prevent new employees from being hired, receiving a grant, and immediately quitting. While this seems logical, there are practical reasons why a waiting period is not a workable employee relief fund feature:
A waiting period means that employees in need may not be able to apply, even if they never planned to take advantage of the fund when they first learned of it. Hence, most fund sponsors conclude that this is an unnecessary overabundance of caution. In fact, an eligibility waiting period may prevent the fund from serving its purpose by helping qualifying employees in need.
In addition to the more limited charitable class, conditioning eligibility for a relief fund grant on a certain period of service has regulatory problems. Such a policy unquestionably encourages employees who would not be eligible to continue working until they are eligible. That requirement, by definition, enhances employee retention. This means that a waiting period for eligibility will impermissibly serve the employer, and therefore risks the tax-advantaged status of the program. It can even jeopardize the independent tax-exempt entity administering the fund.
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.