Unexpected events, such as significant illness and natural disasters, can disrupt employees’ lives and company operations. Implementing employer-provided disaster benefits before an emergency arises can help employers attract and retain employees, maintain morale, and aid retention when crises occur.
Leave Sharing Programs
Leave sharing allows employees to donate their personal leave or vacation time to a leave sharing pool. Employees who need leave for a medical emergency or major disaster, natural or otherwise, may use donated leave to extend their paid time off.
Leave sharing programs are voluntary and when they are offered, there are two common problems to avoid. First, any paid leave required by law should not be eligible for leave sharing. Second, donors may not select the recipients of their donated leave. When properly documented with a written policy, donated leave is not taxed to the donor, making this a useful way for employees to support one another.
Qualified Disaster Payments
Employers may provide tax-free payments to employees affected by disasters to cover certain necessities, including home repairs, family and living expenses, funeral expenses, and replacement of necessary non-luxury items such as beds and kitchen appliances.
These tax-free payments may not be used to reimburse expenses already covered by the employee’s insurance. Employers can decide payment amounts, whether small or large, and can limit amounts by individual or for all employees, as long as the benefits are provided in a nondiscriminatory manner.
Retirement Plan and Qualified Disaster Withdrawals
Recent changes to retirement plan rules have created new options for employees impacted by federally declared disasters. Employers sponsoring 401(k), 403(b), or governmental 457(b) plans may allow plan participants to take “qualified disaster recovery withdrawals” from their plan accounts of up to $22,000. However, not all participants will qualify for the maximum amount.
These qualified disaster recovery withdrawals are exempt from the 10% early withdrawal penalty that typically applies to distributions before age 59 and a half. Participants may repay qualified disaster recovery withdrawals to the plan over the three years, restoring retirement savings after recovery, a rare feature for plan distributions.
To offer qualified disaster withdrawals and repayments, the retirement plan must be amended. Many service providers are prepared to implement and administer these options as part of their plan services.
Non-Employer Provided Benefits
Employers affected by federally declared disasters may be eligible for government benefits at the local, state, and federal levels. Employers interested in sharing this information should consult with legal counsel or advisors to determine what programs are available and how to best communicate them. For employers in disaster-prone areas, connecting employees with service providers who can explain these resources can add meaningful support.
Before and during a disaster, employers have many options to help employees and maintain morale. If you have questions, want more information, or need help preparing the right documentation, contact a member of our Employee Benefits Practice Team who has experience and would be happy to assist with these benefit options.
This advisory was originally published on November 1, 2024, and updated October 30, 2025.
