Can Employees Donate PTO? Here’s What Employers Must Know

Ever had one employee with more accrued PTO than they know what to do with, while other employees are facing a medical emergency or prolonged absence with no paid leave left? That’s where PTO donation comes in. In this blog, we’ll break it all down so you can create a fair and compliant PTO donation policy that actually works.

What is PTO donation?

PTO donation (also called leave-sharing) is a way for donor employees to donate accrued PTO (paid time off) to fellow employees who are going through a tough time. Think medical condition, natural disaster, or a family member needing care. Instead of losing unused paid time, employees can give it to someone who genuinely needs it.

There are three main types of leave donations:

Donation to pool (leave bank)

This model allows employees to donate their accrued PTO into a central bank. Eligible employees who are adversely affected (say, by a major disaster or a prolonged absence due to a medical emergency) can request time from this bank. It’s anonymous, equal, and a good fit for larger teams.

How it works:

• The donated PTO is anonymous.

• HR manages donations, requests, and usage.

• It’s often capped with a maximum amount employees can give or receive.

This model simplifies administration and avoids favouritism, but make sure you define rules clearly in your PTO donation policy.

Direct sharing (employee-to-employee)

This one’s more personal. One employee donates paid leave directly to another. You’ll often see this used when a team member is helping a close colleague through something like cancer treatment or a long recovery. It’s effective but requires clear boundaries; who’s eligible, how much can be donated, and how to ensure compliance with tax and payroll rules.

Important to address:

• Who qualifies as eligible employees or recipients

• Limits on the maximum amount of donation

• Payroll rules and whether both parties have to pay taxes

Also, check for negative tax consequences; some countries treat this as income for the recipient.

Charitable donation

In this model, donor employees convert unused PTO into a charitable contribution. The cash value goes to an approved charity. This became popular during the coronavirus pandemic, when employees wanted to support communities hit by hardship. It’s generous and purpose-driven, but still involves tax implications, so you’ll need to check if the donated time counts as a charitable contribution under local law.

Pros:

• Strengthens CSR (Corporate Social Responsibility) efforts

• Often allowed in response to a major disaster or when the president declares a national emergency (under the Stafford Act)

Cons:

• You’ll need to dig into tax codes; donations might still count as income for the donor or raise tax implications depending on the setup.

Quick overview: PTO donation models & pros: 

Why companies offer this

Offering a PTO donation program can be a smart HR move. When employees can help other employees during hard times, it builds a real sense of trust and loyalty.

Here’s what employers gain:

• Morale boost – Being able to support a fellow employee through a medical emergency or natural disaster makes people feel good.

• Better retention – Teams stick around when they feel the company has their back.

• Stronger culture – A voluntary donation program signals a supportive workplace, not just lip service.

Legal & tax compliance in the US

PTO donation might seem straightforward, but if you're in the US, the IRS has a few opinions, and you definitely want to ensure compliance.

IRS rules on medical & disaster programmes

The IRS allows two very specific exceptions for donations to be treated as non-taxable for donor employees, and these are crucial to get right:

• Medical emergency: If employees affected are dealing with a serious medical condition or family member care that causes a prolonged absence, leave donations can qualify.

• Major disaster: If the president declares a natural disaster under the Stafford Act, PTO donated to other employees qualifies under the second of the two exceptions.

In both cases, the donated time is excluded from the donor's income, so they don’t pay taxes on it. However, the recipients usually pay taxes because it counts as regular income to them.

Written‑plan requirements

You can't just wing it. The IRS expects a formal, documented PTO donation policy to be in place for any donation program.

Here’s what your plan should include:

• Who qualifies as eligible employees or recipients

• The process to request donated leave

• How much time can be donated (maximum amount)

• Timing rules (opt-in or opt-out periods)

• A clear statement that donations are voluntary

Without this written plan, you risk negative tax consequences for both donors and recipients.

How is donated PTO taxed?

Let’s break it down:

That’s why many employers only allow donations under the IRS’s two exceptions, to avoid headaches for everyone.

Can employees opt‑in or opt‑out anytime?

Not exactly. To ensure compliance, your PTO donation policy should include specific timeframes when employees can choose to join or leave the donation program.

For example:

• Annual opt-in periods

• Restrictions on withdrawing a donation once submitted

• HR approval windows for both giving and receiving paid leave

Keep it fair, consistent, and well-documented.

Is PTO donation a thing in the UK/EU?

If you're managing a team in the UK or EU, the idea of PTO donation gets a bit trickier.

Uk statutory leave rules

Under the UK’s Working Time Regulations, employees are entitled to at least 5.6 weeks of paid time off each year. This statutory leave cannot be waived, gifted, or reduced through any kind of donation.

In other words: you can’t donate or accept statutory leave; only supplementary leave offered above the legal minimum.

Employer discretion for supplementary leave

That said, if your company offers extra accrued PTO or paid leave beyond the statutory minimum, then yes, you can allow donated PTO, as long as it’s:

• Voluntary

• Well-documented

• Not tied to statutory entitlements

Some UK-based firms ran charity-linked schemes during the coronavirus pandemic, similar to the charitable contribution donation model used in the US.

Key steps to design your PTO donation programme

If you want your donation model to run smoothly, you’ll need a good structure.

Define goals and model

Start by asking:

• Are you doing this for employees affected by a medical emergency or natural disaster?

• Will this be a leave-bank, direct-sharing, or charitable contribution setup?

Choose the donation model that fits your size, culture, and admin capacity.

Write clear policy

Draft a proper PTO donation policy that answers:

• Who are eligible employees and recipients?

• Can employees donate accrued PTO during any time of year?

• What’s the maximum amount that can be donated or requested?

• How are donations processed, approved, and tracked?

• What are the tax implications?

This policy needs legal review (especially in the US) to avoid negative consequences or compliance issues with the IRS.

Integrate with HR/payroll systems

You’ll need to update your systems to:

• Track donation balances

• Apply donated time to recipient’s paid leave

• Ensure correct taxation (pay taxes or exempt based on IRS rules)

Your HRIS and payroll tools should be configured to reflect these changes in real-time. No manual spreadsheets, please.

Manage leave and absence with ease!

• Automatic accrual of vacation hours
• Request leave easily
• Leave registrations visible in the planning

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Make PTO donation easier with Shiftbase

Setting up a PTO donation program is one thing, managing it without chaos is another. That’s where Shiftbase helps. With built-in tools for employee scheduling, time tracking, and absence management, Shiftbase lets you track donated PTO, monitor paid leave balances, and manage donors and recipients, all in one place.

No messy spreadsheets. No manual approvals. Just a streamlined way to support your team when they need it most.

👉 Want to simplify your donation program? Try Shiftbase free for 14 days and see how easy it can be.