Robert Nichols is a dedicated employee at a Fortune 500 company. For five years, he never runs late to meetings, never misses deadlines, and never takes days off except on holidays. In early 2020, that all changes. An outbreak of Covid-19 strikes the U.S. and infects thousands within days, which leads to the unprecedented shut-down of numerous schools, sports, and businesses. Robert gets a call from his boss in March telling him he’s been furloughed. He asks when he can return and his boss responds honestly: “I don’t know yet. Hopefully, before Easter.” Easter comes, but Robert’s working part-time from home. His rent is due at the end of the month, and he’s unsure if he’s saved enough to pay his bills. He’s floundering.
Robert is not alone. The Harvard Business Review acknowledges employees’ hardships during a crisis, stating that about forty percent of American families are unprepared to survive an emergency similar to Robert’s. Traditionally, there have been three methods of providing aid to employees--Ad-hoc employee-initiated Gofundme campaigns, corporate grants, and foundation-administered hardship funds--and each of them comes with its own set of limitations. We’ll explore these methods of helping employees during a crisis and compare them against the new approach that many corporations have turned to recently to avoid the administrative overhead.
The first approach is through ad-hoc, employee-initiated Gofundme campaigns. When needed, coworkers initiate a Gofundme campaign to help a worker in a difficult situation. They can attract the assistance of friends, family members, and anyone else willing to contribute. These campaigns can also gather support from business leaders. The main advantage to running a campaign with Gofundme is how quick the process can be. It’s easy for an employee to start; just create the campaign and promote it to people by email or social media.
There are, however, three major drawbacks to promoting a Gofundme based approach. One is that there’s no corporate branding or control. People donating to the cause might ask why the corporation didn’t do anything to help in the first place. Since it is employee-led and ad-hoc, the company would fail to realize any employee engagement benefits. Another reason Gofundme isn’t always a good answer is the lack of anonymity for the employee in crisis. The Harvard Business Review suggests that if someone needs help, he may feel embarrassed asking for it. This may not be a problem for all employees, but others won’t be willing to sacrifice their dignity for assistance. The last glaring issue is that the donations won’t be tax deductible. Employees who contribute to help a colleague can’t get their money counted as a charitable tax deduction. This would also affect the employee in need. The funds he received through the Gofundme campaign would count as income, which means he would need to pay tax on it.
Another traditional way to help employees in a crisis is by making a corporate grant. Here, the company defines the policy and identifies a committee to respond to employees’ requests. This committee--typically led by HR--decides on the grants based on the funds available and the needs of the worker in question. The one big advantage to this type of aid is that the employee in crisis experiences the company helping them when they need it most. The Aspen Institute states that employees felt grateful knowing their business would be there in an emergency. During a disaster, it’s good to know that an employer can provide assistance.
Similar to a Gofundme, there are some significant disadvantages to using a corporate grant for employee relief. Both options share similar flaws when it comes to lack of anonymity for the worker in need and the minimization of tax deductibles--the company doesn’t get a tax deduction and the grant gets counted as income for the employee. The corporate grant has its own individual flaws too. One is the significant administrative overhead for HR. If employees in a crisis don’t receive quick responses from the committee, it may actually end up hurting employee engagement! Additionally, it may be awkward for the assigned committee to decline employees’ requests. The committee’s grant making decisions can be influenced by their relationship with employees. According to The Aspen Institute, there’s a glaring disparity between a worker’s satisfaction with the grant and the grant’s actual helpfulness. This is often created by the inconsistent decision-making of many administrative committees.
The third traditional way is to set up a tax-advantaged employee hardship fund administered by the corporate foundation. Here, a company sets up a foundation to operate the employee hardship program. Once it’s set up, both the company and employees donate to the foundation, and foundation administrators perform background checks to applicants before they make the grants for employees in need. Not only do the employees experience the company helping them in their time of need, but they get the benefit of anonymity by the foundation. It also fixes the problems with taxes. The company and employees can take a charitable deductible and the employee in crisis can opt for grants to be tax exempt.
While this employee hardship fund seems more promising than the other two traditional methods, there are a couple limitations that keep corporate foundations from being an ideal means of assistance. One of the biggest obstacles this approach has to overcome is lead time and overhead costs. Because the company has to establish a corporate foundation for relief to be provided, there has to be sufficient lead time for the foundation to get set up. This process can take at least six months and as long as a year. While this can be beneficial in the future, some employees can’t wait so long for financial stability. This is a reason why Harvard Business Review suggests using existing company infrastructure to give employees resources in an efficient and timely manner. Another big detractor from the corporate foundation is the cost. It needs to first meet all reporting and compliance requirements. On top of any fines the company would pay for not following these prerequisites, the foundation would likely bring an increase in overhead costs.
Over the last few years, many companies are turning to a new way to help bring relief to their workers--a partner administered, tax-advantaged employee hardship fund. In this scenario, the company partners with a separate organization that specializes in creating and operating employee hardship funds. While companies focus on running their business, partners who specialize in administering employee hardship programs can help reduce overhead costs while delivering prompt assistance to the employees when they need it.
There are many reasons why this approach at an employee hardship fund is better than any of the traditional paths. For one, employees in crisis experience the company’s help, even if it’s from its partner. It also benefits the company and its employees by giving them a charitable donation tax deductible, and the grants provided are designed to be tax free for employees. Additionally, the fund can be set up within a few days, and it comes with low administrative overhead and compliance fees. Partner administered employee hardship funds provide everything the traditional methods accomplish while having none of the drawbacks, but don’t just take our word for it. Read the story of a Red Rocks Credit Union employee who faced eviction during the pandemic. Through the company’s partnership with Cotribute, she was able to keep her apartment during lockdown. There’s a plethora of additional people who’ve benefited from the Red Rocks Credit Union Cares program. Last year, when COVID hit, Red Rocks Credit Union took advantage of Cotribute’s technology platform to set up and administer their employee hardship fund.
While partnering with Cotribute, setting up a tax-advantaged employee hardship fund for your company is simple and only takes a few steps. The first is to set up a free consultation with one of our solution experts. We will help you review your options and adapt your employee hardship fund based on your needs - at no cost! When you’re ready to begin, we’ll create your hardship fund, branded fund page, and employee application--we’ll do all the setup work in two days. We’ll provide you with templates you can use to share the program with your employers. We’ll administer your employee hardship fund and handle the reports, donation receipts, client anonymity, and any other issues--so you can focus on fostering a caring community in your company and celebrate the impact of your employee hardship fund!