Creating & Managing an Employee Assistance Fund

For many companies committed to corporate responsibility, disaster relief is a cornerstone of social impact programs. These initiatives raise awareness, mobilize funding, and deliver critical global aid after large-scale catastrophic events.

But what happens when crisis strikes a little closer to home?

What happens when the person in need isn’t a stranger across the world, but rather, a teammate in the office or colleague on the other end of a conference call?

Providing Employee Relief

When it comes to employees, disasters come in many forms. They can be external events, like a house fire, a flood, or natural disaster; or they can come as a sudden, unexpected physical, mental, emotional, or financial hardship. With 57% of organizations citing non-work factors including health issues, relationships/family, and financial concerns among the top three causes of stress-related absences, these hardships can negatively impact productivity, job performance, and mental health.

So, what can companies do to support their employees through times of crisis?

Businesses have the unique opportunity to provide essential aid to their workforce through an Employee Assistance Fund (EAF) – also known as an Employee Relief Fund, Employee Crisis Fund, or Emergency Employee Care Fund.

These funds are employer-sponsored, tax-free initiatives that provide employees with financial support during difficult times. Team members can regularly make donations directly to the fund; then those in need can apply for assistance and relief when they need it most. These efforts allow colleagues to support each other through difficult times while demonstrating the company’s commitment to employee well-being.

Setting up an Employee Assistance Fund

There are many components that go into setting up and providing an Employee Assistance Fund; but your approach can be guided by two overarching considerations.

• Program Structure: How will you make sure your employees a) know the fund exists and b) know how to apply to it if they ever needed assistance?
• Legal Structure: How will you keep your program in compliance with all legal guidelines? (The way that assistance is awarded could result in tax implications upon the recipients.)

To help ensure your program’s success, we are going to walk you through some of the tough decisions that come along with starting employee assistance funds.

Building Your Program Structure

1. Your first step is to think about where this program will live at your company. For some companies, the Human Resources team owns the Employee Assistance Fund. For others, it’s the Corporate Social Responsibility team. Either way, communicating your program to your employees (and ensuring they utilize it) requires cross-departmental collaboration.

2. Next, you’ll have to decide how the program will be funded. This can be through:

• Individual donations from fellow employees

• Company funds

• A combination of both

The various options your company has for initiating and managing such an effort will help guide your decision.

3. Finally, determine who qualifies for the program (all employees, only full-time employees, etc.) and what will qualify for assistance (minimum service period, specific hardship situations, etc.). Creating clear guidelines will be an integral part of setting up your program structure and communicating it to employees.

Once you’ve outlined the framework for your employee assistance program. we recommend having your legal team review it before it’s published.

The Legal Structure

In addition to outlining your EAF framework, you’ll also have to think about how your fund will be legally and financially structured. There are a variety of models to choose from; however, each model has its own tax implications, compliance requirements, and levels of administrative effort. Let’s look at some of the most popular options, as well as key considerations for each:

Private Foundation

The first route a corporation could take for making charitable contributions could be setting up a private foundation – a charitable organization funded and controlled by the company. With this option, the business would be solely responsible for establishing, opening, maintaining, and managing the foundation’s various funds.

Key considerations

• A private foundation can only make relief grants to employees for certain “qualified” disasters (i.e. disasters declared by the U.S. president or by FEMA (Federal Emergency Management Agency). It cannot legally make grants to employees for cases of individual financial hardship.
• Employees cannot donate to a private foundation in support of the employee assistance program.
• Private foundations require ongoing administration, financial investment, and legal compliance, which can create a long and expensive process for corporations.
• There are limitations to which grants or donations qualify as tax deductible.

Best For: Large corporations with existing corporate foundations and the legal capacity to manage compliance

Public Foundation

Unlike their private counterparts, public foundations (or public charities) can both accept donations from multiple sources, including employees, and issue tax-free grants to colleagues in need. This is a popular option for employee assistance funds because it allows for both corporate and individual giving while still maintaining tax-exempt status. Companies typically opt to operate their own public charity (i.e. corporate foundation) or work with an established non-profit that manages the fund for them.

Key considerations

• Employees can make donations to the foundation in support of the employee relief program.
• Grants and donations are tax-free under all circumstances.
• A public foundation provides companies with more flexibility and tax advantages
• Companies have authority over grant decisions and disbursements to recipients, which can, in turn, reduce liability and risk.

Best For: Mid-to-large corporations that already have corporate foundations in place.

Direct Corporate Funding

In this model, the company provides grants directly to employees from its own operational budget – without a separate charitable entity. While simple to administer, this option does not qualify as charitable giving for IRS purposes. That means the company cannot deduct these as charitable donations and the employee recipient must treat the funds as taxable income.

Key Considerations

• Faster to implement (no legal set up required).
• Works well for emergency situations and/or small-scale, one-time relief efforts.
• A company cannot claim charitable deductions with the IRS.
• Employees receiving support will have to pay taxes on the award.

Best For: Companies looking to create a fast, internal process that can provide immediate response without added administrative overhead.

Third-Party Disaster Relief Fund

Employee disaster relief specialists are nonprofit organizations that establish employee relief funds on behalf of corporations. These specialists take on the heavy lifting that is involved in setting up a fund and make sure that the program is in legal compliance. Once the fund is in place, both the corporation and its employees are able to make tax-free contributions to the employee assistance fund.

Key Considerations

• Tax deductible donations for both the employee and the company.
• Simplified global scalability and compliance.
• May require seed funding or additional fees.

Best For: Organizations looking for a simplified, hands-off option that does not require in-house legal or administrative bandwidth. If you are considering going the Third-Party Relief Fund route and are stuck on which organization to choose, our team can recommend some great options for you! Just get in touch with one of our experts, we’d be happy to connect.

The Donation and Application Process

Choosing the right structure and funding model for your fund is integral to your fund’s success as determines the costs, workload, and tax-status of your employee’s donations. But beyond that, it also dictates how your employees experience and participate in the program.

That’s why so many of today’s leading businesses leverage corporate social responsibility software to manage donations, applications, and reporting.

These purpose-built platforms reduce barriers to entry by allowing employees to:

• Make donations directly to the employee assistance fund via variety of payment methods (i.e. payroll, credit card, etc) and currencies.
• Access all program features and information, from donation to application, in one central location.
• Ensure confidentiality and sensitivity for both donors and recipients, as well as providing any necessary guidelines for application reviewers.

This, in turn, reduces undue stress on program managers; ultimately, enabling faster response times for those in need, as well as more accurate and transparent reporting for all stakeholders involved.