The novel coronavirus (COVID-19) pandemic has forced many companies to scale back operations, temporarily close facilities, and reduce hours. Due to these and other challenges associated with the response to COVID-19, company employees and their families may find that they are experiencing economic hardship.
On Friday, March 13, 2020, the President of the United States made an emergency declaration identifying the COVID-19 pandemic as a national emergency pursuant to the Stafford Disaster Relief and Emergency Assistance Act. As a result of this declaration, the COVID-19 pandemic now constitutes a “qualified disaster,” which means that employers, private foundations (including company-sponsored foundations) and donor advised funds have expanded options for providing financial assistance to company employees and their families that incur economic hardship in connection with COVID-19.
Employee emergency assistance payments typically take one of three forms: (1) financial relief provided by the company; (2) financial relief provided by a private foundation (or company-sponsored foundation or donor advised fund); and (3) financial relief provided by a public charity.
Financial Relief Provided by the Company
- A company can make qualified disaster relief payments directly to its employees and their dependents.
Most notably, “Qualified disaster relief payments” include payments for “reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.
- Qualified disaster relief payments or grants do not include:
- payments for expenses otherwise paid for by insurance or other reimbursements; or
- income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.
- A company may forgo requiring individuals to provide proof of actual expenses to receive a grant, but the company must have procedures and documentation that will otherwise ensure that the grant amounts are reasonably commensurate with an employee’s unreimbursed reasonable and necessary expenses (such as medical, temporary housing, and transportation expenses) incurred as a result of the COVID-19 pandemic. The procedures for handling direct qualified disaster relief payments should track the procedures laid out below for a private foundation or public charity.
- Grant payments should not be intended to indemnify every loss related to the disaster or to reimburse the cost of nonessential, luxury, or decorative items and services.
- Grant payments should be available to all employees regardless of length or type of service with the employer.
Financial Relief Provided by a Private Foundation (including a Company Foundation or Donor Advised Fund)
- Many company foundations are classified as private foundations, and company-related donor advised funds generally are subject to similar rules for purposes of providing relief to employees. Typically, the “self-dealing” rules prohibit these foundations and donor advised funds from providing financial assistance to company employees because this assistance would confer more than an incidental benefit on the company. However, as a result of the national emergency declaration, an exception to the self-dealing rules will permit a private foundation, employer-sponsored company foundation or donor advised fund to make qualified disaster relief payments (described above) to company employees and their family members that are affected by COVID-19, subject to certain standards and requirements.
- A disaster relief assistance program for company employees should be structured in accordance with the following criteria:
- Eligibility and Selection
- The relief provided must be in response to a qualified disaster, such as the COVID-19 pandemic.
- The program must benefit a class of beneficiaries that is large or indefinite (e.g., open to individuals impacted by current and future disasters).
- The foundation or donor advised fund should set up a selection committee with at least three members, a majority of whom are not in a position to exercise substantial influence over the affairs of the company.
- The foundation should create an application for relief that must be completed by each individual seeking assistance.
- The recipients of the relief payments must be selected based on an objective determination of financial need.
- Payments may not be made to directors of the foundation, donor advisors to the fund or to the members of the foundation’s selection committee.
- General Limits on Benefit to Company
- Other than as an initial qualifier, employment should not be a relevant factor in the application or selection process, or in the amount or type of assistance provided.
- The program may not be used to induce employees to follow a course of action sought by the company or be designed to relieve the company of a legal obligation for employee benefits.
- Records Required
- The foundation must maintain records associated with a disaster relief grantmaking program that include information on the nature of the assistance, the criteria for disbursing assistance, and the name, address, and amount distributed to each recipient.
- Implementing a New Program
- If the foundation has not previously administered this type of employee assistance program, the program should be approved by the foundation’s board of directors or the sponsoring charity for the donor advised fund.
- The foundation’s new program should also be disclosed to the IRS on its next Form 990-PF (and on the Form 990 of the sponsoring charity for a donor advised fund).
- Eligibility and Selection
Financial Relief Provided by a Public Charity
Due to its tax status, a public charity can provide employee assistance grants for a broader range of reasons, including in cases of emergency hardship that do not constitute a qualified disaster (e.g. victim of a crime; experienced personal loss such as a fire or sudden death of family member; or cash assistance for food, rent, or utilities for individuals with objective determination of need). A public charity’s employee assistance program should be administered in accordance with the criteria set forth above, with the exception that the payments are not limited to those affected by a qualified disaster.
As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.