Employee Emergency Disaster Relief Fund Response To Coronavirus (COVID-19): Top 7 Best Practice and Program Design Considerations

By: Bryan K. Clontz, CFP, CLU, ChFC, CAP, AEP

As the Coronavirus (COVID-19) continues to spread across the globe, schools are closing, events are being canceled, and many individuals are falling victim to the physical, financial and emotional effects this pandemic is having on society.

When the smoke eventually clears, and the world looks back on this crisis, many will ask how both non-profit and for-profit organizations supported employees when they needed it most.

One of the most impactful ways an organization can assist their employees during a crisis like the Coronavirus (COVID-19) is through financial assistance. It is becoming increasingly common for large to mid-size companies to implement an employee assistance program that allows the organization to process grants quickly in times of personal hardship and disaster. This method of financial assistance is more efficient and effective than a GoFundMe-type solution because it allows the employees to receive tax-free grants in real-time and provides opportunities for employees to make tax-deductible donations. However, regardless of the method in which a company decides to support its employees financially, it is vital the organization consider the following factors, as these will drastically affect the level of impact possible:

1. Donations

Most corporations will donate a large sum to an employee relief fund upfront to kickstart fundraising efforts. However, it is important not to forget about employee participation in the donation process. Empowering employees to donate to the organization's fund is a great way to boost company morale and positively impact culture. Employee donations will also help increase the fund's balance, which is vital as a large-scale crisis like COVID-19 will likely result in a high number of grant requests and applications.

There are many ways companies can provide employees the opportunity to donate, such as direct donations during employee giving campaigns and payroll deductions. Don't forget to plan a well-executed employee giving campaign around these efforts and connect with the marketing / communications department to help spread the word across the organization. Depending on company structure, there are a variety of ways this can be accomplished: email campaigns, handouts, flyers, employee-led pop-up groups, etc.

2. Eligibility & IRS Compliance

One advantage of employee relief funds in the United States is that grants are tax-free, and donations are tax-deductible. However, in exchange for this favorable tax treatment, the Internal Revenue Service (IRS) requires employee relief funds meet certain standards. One of the most important rules is the “needs test.” The legal purpose of charities is to give relief to the distressed. The IRS requires charities to have a “needy or distressed test” in the form of an objective set criteria.

These rules allow charities to make unbiased decisions based on the applicant’s needs. Grant awards for a personal hardship should be made based on the financial burden to the applicant. What does the IRS mean by “financial burden?” The criteria should examine reasonably available cash and additional assets, including anticipated future income. If those resources are expected to be insufficient to cover existing obligations and basic needs, the applicant has satisfied the needs test.

Two important items to note about the needs test are:

• The grant does not need to make the applicant whole. The needs test should only account for what is necessary to relieve the distress. This means individuals with considerable financial means will have a harder time satisfying the needs test.
• Qualifying applicants must experience a sudden financial burden due to events beyond their control. Applicants who consistently operate at a financial deficit do not meet the needs test.

The above factors are some of the elements that can determine whether an applicant will qualify for an employee relief grant. Financial burdens are determined by the level of liquid assets which are available along with annual household income, based on United States federal poverty guidelines and supplemental HUD guidelines for high cost of living MSAs. Such guidelines are based on income and the size of the household. For Alaska, Hawaii and large metropolitan areas with a higher cost of living, the base amounts are substantially higher.

3. Objectivity & Confidentiality

Companies must maintain objectivity during the grant review and approval process. The first step in achieving objectivity is to outline qualifying criteria that will determine an individual’s eligibility to receive a grant.

Employee Relief Funds refer to this as “Charitable Class.” The IRS defines charitable class as, "The group of individuals that may properly receive assistance from a charitable organization..."*

In other words, a company must first define who may apply and qualify to receive a grant.

While elements like what occurred to make someone apply for a grant, when such an event occurred and how much money the applicant is applying for, are factors to consider when reviewing grant applications, they are not part of defining a Charitable Class.

The next step in achieving objectivity is to make sure the review process remains unbiased and confidential. Companies sometimes develop a committee dedicated to the unbiased review and approval of grant applications when the fund is run in-house. For this process to truly remain objective it is wise to keep an applicant’s name and personal information confidential. Another way to ensure objectivity is to hire a third-party administrator to handle the entire application review and grant approval process.

It is important to understand the regulations surrounding grant-making, objectivity and applicant eligibility. Regulatory compliance can be challenging to navigate, which is why many organizations choose to partner with a third-party administrator that manages compliance and grant processing.

4. Grant Process

A typical grant process flow looks different for every company depending on the type of fund, how it is managed and the resources available to process grants effectively. Below is a step by step outline of a best practice grant process flow:
1. The applicant completes and submits the application.
2. Information is automatically uploaded into a secure server.
3. The application is assigned to a reviewer.
4. If the applicant has not submitted all the required documentations, the reviewer follows up with the applicant to acquire missing information.
5. Initial review begins within 24 hours.
6. The grants team verifies the applicant qualifies under established charitable class.
7. Quality check is completed within 24 hours.
8. If the application is approved, grants team completes the request for payment, alerts finance, and emails the applicant.
9. The finance team acquires the necessary financial details from the applicant and processes payment.

5. International Grants

For an event that has a wide-scale global impact, like COVID-19, companies need to consider how to assist employees overseas. Generally, the administrative costs of international grants should not be significantly higher than domestic grants. However, to minimize costs, the company must be thoughtful in addressing the unique circumstances of awarding grants in multiple countries. This is another area that, while vitally important, can be difficult to navigate. Especially regarding GDPR compliance and efficient payment processing.

If an organization chooses to partner with a third party to assist in the international grant-making process, the organization should ensure the administrator has strong relationships with global financial services firms. It is especially critical that such firms understand the local compliance requirements and can seamlessly transfer the funds directly to the grantee's bank account.

6. Timing & Resources

Processing grants quickly and efficiently during times of crisis and disaster is a critical component to making a powerful impact. However, regulatory red tape and lack of resources can often slow down the application review, approval, and payment process. There are ways around these obstacles to ensure grantees receive payments as quickly as possible.

Another vital element of effectively administering financial assistance to employees during crisis, is resource allocation. It is common for companies to underestimate the amount of resources needed to manage the influx of grant applications that occur during times of disaster. If a fund is not third party administered, the organization needs to prepare for significant workload burdens to the HR, legal, administrative, and financial teams. There must be staff in place to manage the many elements that play a part in fund management, including, but not limited to, application review, applicant support help, employee communication, regulatory compliance, and payment processing.

7. Data Security and Real Time Reporting

In today’s landscape, majority of companies have data privacy and information security policies in place. When it comes to relief funds, however, data collection and security processes and procedures can be quite unique. Many privacy policies are focused on external rather than internal constituents. Here is an example of questions to ask regarding data collection and privacy:

If a relief fund provides family hardship applications for a sick child, how do existing policies cover a non-employee (i.e., the child)?  How is the application completed (paper, fax or online)?  What about HIPPA-compliance?  How does the technology also reconcile with standard data privacy, the California requirements (CCPA) and General Data Protection Regulation (GPDR)?  For financial and legal audit and IRS compliance requirements, how, where and how long are applications and supporting documents maintained?  Additionally, many relief fund sponsors find if they are overly strict on data security, applicants may not be able to receive the intended help (e.g., an employee in Puerto Rico who lost her house from Hurricane Maria may not be able to access the employer intranet for days/weeks after the storm).  These are just some of the data security and storage technology implications.  

During non-disaster periods, access to real-time data is important but not critical.  During disaster periods, it is mandatory. In order to make informed decisions in real time, management and senior leadership will need to ask questions like: How many applications have been received and in what geographic/global areas?  What is the average grant request? What percentage of applications are being approved and why are some non-approved?  How much money is in the fund today?  What do we need to raise in the next 30 days to meet the need? 

Even in non-disaster times, questions arise that can critically affect the level of impact possible, such as:  What is our expense ratio for the fund?  What percentage of our employees are donating?  How do we measure up against peers?  What kinds of grant requests are most common within our criteria?  A reporting platform that can easily and quickly provide this strategic management information is essential.

As expressed in this article, there are many elements to consider when providing financial assistance to employees during times of personal hardship and disaster. However, the fact remains, when an employee relief program is executed properly, it results in positive and sustainable impact on a global scale.

*Source: https://www.irs.gov/pub/irs-tege/e9999otopick99.pdf