Regarding donated leave by state employees

Description

Senate File 2256 allows an eligible State employee, defined as a full-time or part-time State employee who is eligible to accrue vacation, to donate leave hours to another eligible State employee. The following are requirements for donated leave:

• Donated vacation and sick leave hours must be donated in whole-hour increments but may be credited to eligible recipients in other than whole-hour increments.
• Donated vacation hours must not exceed allowable vacation hours for the eligible recipient.
• Donated leave will be credited in increments not to exceed the eligible employee’s regularly scheduled work hours on a pay-period-by-pay-period basis.
• Approval of use of donated leave must not be longer than one year on an intermittent or continuous basis for each occurrence.
• Donated leave is irrevocable after credited to an eligible recipient.
• Donated leave hours not credited to an eligible recipient will not be deducted from the donor’s vacation or sick leave balance.

Background

Currently, State employees are eligible to donate vacation leave or receive donated vacation leave for a catastrophic illness under 11 IAC 63.19. “Catastrophic illness” means a physical or mental illness or injury, as certified by a provider, resulting in the inability of the employee or an immediate family member to work for more than 30 work days on a consecutive or intermittent basis. Recipients do not accrue paid time off from donated leave hours. In FY 2021, there were 13,469 hours of donated leave under the catastrophic leave program (excluding the Board of Regents) at a value of approximately $285,000, which is based on the recipient’s pay. Leave is donated on an hour-by-hour basis.

Under Internal Revenue Service (IRS) guidelines in Bulletin 2006-59, a donation of leave is taxable to the individual donating the leave unless the donation is for a recipient impacted by a qualified medical emergency or a major disaster proclaimed by the president. In these specific instances, the donor does not pay taxes on the donated leave.

State employees are entitled to a cash payment of not more than $2,000 upon retirement, based upon the value of the employee’s accrued sick leave balance. Retiring employees can also participate in the Sick Leave Insurance Program (SLIP), which offers retirement-eligible employees an option to use unused sick leave balance to pay the State share of their group health insurance premiums until they become eligible for Medicare after retirement. Vacation leave is cumulative to a maximum of twice an employee’s annual rate of accrual, including any sick leave conversion. After the maximum is met, that employee does not continue to accrue vacation time. In FY 2021, there were 46,127 hours of vacation accrual lost (excluding the Board of Regents) at a value of approximately $1.7 million.

The State operates five payroll systems: the Department of Administrative Services-State Accounting Enterprise (DAS-SAE) Centralized Payroll, the Department of Transportation, the University of Iowa, Iowa State University, and the University of Northern Iowa.

Assumptions

• Leave is paid at the receiving employee’s wage rate and by the recipient’s agency.
• Donors may pay taxes on the leave that is donated outside of qualified medical emergencies or major disasters.
• The Bill could result in an increase of donated sick leave. However, the extent of any increase cannot be estimated.
• The Bill could result in an increase of donated vacation leave. However, the extent of any increase cannot be estimated.
• To support the donation leave program, the DAS may need to hire 2.0 full-time equivalent (FTE) Fiscal and Policy Analyst senior positions. These positions would be used to track transfers between systems, determine the taxability of hours donated, and determine when hours are credited to a recipient.
• Salary costs for the 2.0 FTE positions are assumed to increase by a 1.1% across-the-board increase and 3.0% merit increase in FY 2024 and a 3.0% across-the-board increase and a 3.0% merit increase in FY 2025.
• The Board of Regents also estimates that creating and managing an interagency leave donation system may require staff time and technology resources.

Fiscal Impact

Costs of Administration

Table 1 below shows the estimated costs associated with filling the FTE positions in the DAS on an annual basis, as reported by the DAS.

Table 1 — DAS Estimated Personnel Costs, FY 2023 — FY 2025

Costs of Donated Leave

The fiscal impact related to the costs of donated leave cannot be estimated at this time. Potential identified fiscal impacts include an increase in paid time off that previously went unpaid, a decrease in lost vacation time, whether donated leave is eligible for a payout upon separation or retirement, and any salary differences between donors and recipients. Unknown variables include but are not limited to the quantity of leave requests and the length of leave requests. The volume of individuals donating leave may also be impacted by the taxability of the leave donation, whether the individual is retiring or separating from employment, and whether the individual’s unused leave is eligible for a payout of any kind upon separation or retirement from employment with the State.

Lastly, it is unknown how many leave donations between agencies will occur, what the savings or additional expenses to the donating and receiving agencies will be, and what funding sources will be impacted. Savings or additional expenses of agencies are also dependent on whetherFY 2023 FY 2024 FY 2025 Salary and Benefits 196,000$ 204,000$ 217,000$ Recurring Annual Costs 4,000 4,000 4,000 One-Time IT Equipment 3,000 0 0 Total 203,000$ 208,000$ 221,000$ donated leave is eligible for payout to a recipient upon separation or retirement from employment.

Sources

• Department of Administrative Services
• Board of Regents
• Department of Transportation