Do domestic partner benefits make sense for you?

So you read the previous article and want to make your company more friendly to your gay, lesbian, bisexual, and transgendered (GLBT) employees (and therefore the GLBT community). A good first step is offering domestic partner benefits as a recruiting tool. Simply put, domestic partner benefits are benefits offered to an employee’s unmarried partner, regardless of sexual orientation. Besides being an effective recruiting tool, domestic partner benefits also send a message that all employees are valued equally.

The average benefits plan can amount to nearly one-quarter of an employee’s total compensation package, with roughly half of that devoted to health insurance. For most GLBT employees, the portion of those benefit plans that covers a traditional employee’s dependents is unavailable, creating significant disparity in compensation and the inferred value of that employee’s contributions to the company.

Origin of domestic partner benefits

The trend for domestic partner benefits began in 1996 when San Francisco enacted a domestic partner ordinance that prohibits the city or county from entering into agreements with parties that discriminate against domestic partners in providing benefits. In other words, if an employer offers a benefit to an employee’s spouse, then it also must offer that benefit to domestic partners. The types of benefits include (1) medical insurance, (2) disability insurance, (3) life insurance, (4) family leave, (5) bereavement leave, (6) parental leave, (7) use of company facilities and libraries, and (8) discounts and entitlements, such as educational subsidies, merchandise, and travel passes.

The ordinance has had far-reaching effects. Any employer that contracts with San Francisco for public works projects, franchises, concessions, leases of city property, or the provision of goods, services, or supplies purchased with city or county funds is covered. Think about that — construction, bridge and road repairs, conventions, airports, utilities, office supplies, and so on.

Most significant, the ordinance applies to all locations throughout the United States where a contracting employer does business. Thus, a contracting employer must provide domestic partner benefits not just to its employees in San Francisco but to all its employees nationwide.

Weighing the costs

Initially, it was thought that domestic partner benefits would increase health care costs significantly. Over time, experience has shown that the total cost increase was less than one percent. Of course, the eventual cost would depend on the nature and extent of the benefits offered.

Besides the obvious, there are hidden costs associated with offering domestic partner benefits. The IRS has ruled that domestic partners can’t be considered “spouses” for tax purposes. Therefore, you’re obligated to report the fair- market value of the domestic partner coverage as income to the employee. The employee must pay income and social security taxes on that money, and you as the employer must pay your share of the taxes as well.

Other benefits affected

Health Savings Accounts (HSAs). An HSA is a federally defined, tax-free account used to pay for medical expenses, such as eyeglasses and prescriptions. At present, the federal tax code doesn’t permit employees to use those accounts for a domestic partner’s medical expenses, even if the partner is enrolled in an employer-sponsored insurance program. That’s something that can be changed only through a change in federal law — you can’t alter the situation through a change in your company benefits plans.

Family and Medical Leave Act (FMLA). This law requires certain employers to grant employees up to 12 workweeks of unpaid leave during any 12-month period to care for parents, children, or spouses in case of a serious health condition. Under the law, a “spouse” is defined as a husband or wife as defined or recognized under state law for purposes of marriage in the state in which the employee resides, including common-law marriage in states where it’s recognized.

Although the FMLA applies only to “spouses,” you may voluntarily extend the right to domestic partners if you so desire. For example, employers covered by the San Francisco ordinance must provide that benefit.

COBRA. This law requires you to offer employees the opportunity to continue coverage under a health insurance plan if they lose their employment or suffer some other qualifying event. You must offer the continuation coverage to spouses, ex-spouses, and dependents. Although you aren’t required to do so under COBRA, you may choose to extend the benefit to domestic partners.

What is a “domestic partner”?

This discussion begs the question: What is a “domestic partner”? There is no single definition. Because federal discrimination laws don’t include “sexual orientation” or “gender identity or expression,” a single, consistent definition of “domestic partner” doesn’t exist. As a result, employers usually set their own definitions of domestic partner when they’re deciding who’s eligible for the benefits. Many employers require a domestic partner to meet some or all of the following criteria:

• be at least 18 years of age;
• have an exclusive, committed relationship;
• share the same residence and be financially interdependent;
• not be married; and
• have been each other’s sole domestic partner for the past 12 months.

Employers often require proof of the domestic partner relationship, such as registration of the partnership (if available), written affirmation of the partnership, or other documents that confirm the partners live at the same address. If you require that proof, keep in mind that requiring proof for domestic partner status and not for other dependent statuses may be evidence of sexual orientation discrimination. Also, be cautious that your proof requirements don’t invade the privacy of the employee or the domestic partner.

Need help?

Some of the information for this article was gleaned from the website for the Human Rights Campaign, which offers tips for employers about policies, tax implications, and other frequently asked questions.