Leave and Vacation Sharing and Donation Policy
(NJ)

Summary

This template is a leave/vacation sharing and donation policy for use in New Jersey that allows employees to donate paid time off, including vacation and sick days/hours, for use by other employees for medical emergencies. This template includes practical guidance, drafting notes, and alternate and optional clauses. The drafting notes address issues under both New Jersey and federal law. Except for the state-specific changes to the template's language and annotations, this template does not differ from the non-jurisdictional Leave and Vacation Sharing and Donation Policy template. It is important to note that while this type of policy would typically be kept in an Employee Handbook, maintained by Human Resources, the regulations pertaining to these types of policies have been developed by the IRS rather than the DOL. Because of this, it may be necessary to have an individual specializing in tax law review the policy in addition to a labor and employment attorney. While the leave and vacation sharing and donation policy may be limited to "medical emergencies" for which the recipient employee does not have sufficient paid leave, an employer may wish to combine a vacation leave sharing policy with a major disaster leave sharing policy. Optional language is included to that end. This policy has been drafted to provide for the donation and use of whole days of PTO/vacation/sick time, but the policy can be customized to express the units in hours or fractional days. Tax Issues Importantly, employees who accrue leave under a PTO/vacation policy and donate time to a vacation time/PTO bank for use by other employees for medical emergencies, will not have those amounts reported on their Forms W-2 (for the year accrued or the year in which another employee uses that donated leave) or be subject to any withholding taxes. However, payments made under the policy are reportable in the recipient employee's gross income under I.R.C. § 61 and are subject to withholding taxes under I.R.C. §§ 3401 (income tax withholding), 3101 (Social Security, Medicare (hospital insurance) tax withholding), and associated employer payments under those sections and I.R.C. § 3306 (regarding federal unemployment taxes) at the time the recipient employee receives the payment. See Rev. Rul. 90-29 and I.R.S. Notice 2006-59. If a recipient employee receives paid leave hours under the policy from a donor employee who has a different pay rate or salary, the leave time is converted based on the recipient employee's allocable pay rate or salary, so that the dollar value of the surrendered leave remains the same. Leave taken by the recipient employee is always paid at the recipient employee's regular and allocable rate of pay or salary. See Private Letter Ruling 200720017 and I.R.S. Notice 2006-59. State income tax reporting and withholding will apply in a like manner to federal income tax withholding. For information on leave and vacation sharing and donation policies, see Leave and Vacation Sharing and Donation Policies: Key Drafting Tips and Legal Issues. For information on PTO, sick leave, and vacation issues, see Paid Time Off (PTO) Policies: Key Drafting Tips, Sick Leave Policies: Key Drafting Tips, Vacation Policies: Key Drafting Tips, and Paid Sick Leave Policies Checklist (Best Drafting Practices for Employers). For more information on New Jersey vacation pay/PTO and sick leave laws, see Leave Law (NJ) and Wage and Hour (NJ). For tracking of key federal, state, and local Labor & Employment legal developments, see Labor & Employment Key Legal Developments Tracker (Current).