When employees experience a medical crisis, family emergency or other serious hardship, they can quickly run out of paid time off (PTO). Through leave donation programs, co-workers are able to help by donating unused time off, such as vacation or PTO, to colleagues in need, so those employees can take additional paid time off.

Under these programs, employers typically create leave-sharing banks to track donated employee leave. As part of their administration efforts, employers should define eligibility rules, require employees to submit an application to use donated leave and create a process for reviewing whether an employee’s request qualifies.

How Common Donation Programs Are

According to the International Foundation of Employee Benefit Plans’ Employee Benefits Survey: 2026 Survey Report, 21% of employers offering vacation or PTO plans allow workers to donate paid time off to employees in need.

When Donated Leave Can Be Used

An employee who has exhausted their paid leave may draw from a donated leave bank in two situations without creating negative tax consequences for the employees making the donations.

• Medical emergency. According to IRS Revenue Ruling 90-29, a medical emergency is defined as “a medical condition of the employee or a family member of the employee that will require the prolonged absence of the employee from duty and will result in a substantial loss of income to the employee because the employee will have exhausted all paid leave available apart from the leave-sharing plan.”
  • A medical emergency includes an employee experiencing their own medical emergency, assisting a family member (e.g., parent, spouse, child) with a medical emergency or allowing time for bereavement for a family member.
• Major disaster. According to IRS Notice 2006-59, a major disaster means “(a) a major disaster as declared by the President under § 401 of the Stafford Act, 42 U.S.C. § 5170, that warrants individual assistance or individual and public assistance from the federal government under that Act, or (b) a major disaster or emergency as declared by the President pursuant to 5 U.S.C. § 6391, in the case of employees described in that statute.”
  • An employee is considered to be adversely affected by a major disaster if the disaster caused severe hardship to the employee or a family member that requires the employee to be absent from work.

Why Employers Offer Leave Donation

Employers may adopt leave donation programs to increase employee morale, foster relationships among co-workers eager to help their colleagues, reduce lost productivity and absenteeism, and improve recruitment and retention through increased flexibility.

Other PTO Flexibility Options

Employers are also providing other PTO options to offer greater flexibility to employees that have unused time off. Of the employers surveyed:

• Three percent allow employees to donate the cash value of unused time off to charitable organizations, often in response to natural disasters
• Seventy-one percent allow workers to carry over earned vacation/PTO days to subsequent years
• Seventeen percent allow workers to sell back unused vacation/PTO days
• Five percent allow employees to buy additional time off.

Want to know more? The Employee Benefits Survey: 2026 Survey Report offers additional data relating to vacation and paid time off. Members can view the full report here.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.