By TARA SIEGEL BERNARD
New York Times
May 20, 2011
The battle to legalize same-sex marriage may be dominating the headlines, but that issue could take years to resolve. More immediately, a growing number of companies have taken it upon themselves to make life a little more equal for their gay employees.
These companies are reaching into their own pockets to pay for an extra tax that their gay employees owe on their partners’ health insurance — something that their married heterosexual co-workers don’t have to worry about because the federal government recognizes them as an economic unit.
To gay employees, gaining equal benefits is about more than the money. The gesture itself validates their relationship with their partners at a time when the government has not.
Most heterosexuals take for granted that they can add a spouse or children to their employer’s health plan. But gay employees with partners have that option only if they work for an organization that offers domestic partner coverage.
And even when the coverage is available, it costs gay couples more because they are taxed on the value of those benefits.
Over the last year, however, as the word has gotten out about this inequity, more companies have begun to “gross up” these workers, as the policy is known.
“It very quickly became a litmus test among employees for how welcoming their firm was,” said Daryl Herrschaft, director of the workplace project at the Human Rights Campaign. “A lot of folks were very proud of their companies and wanted to tell a lot of people, and in doing so, it sparked some competition.”
The competition has become most apparent in a handful of industries, notably law firms, big consulting companies and in Silicon Valley. More Wall Street firms, meanwhile, are said to be considering the policy. Skadden, Arps, Slate, Meagher & Flom, the New York law firm, is the latest firm to follow suit. And Teach for America, the nonprofit teaching program, adopted the policy earlier this month after initially learning about it on Bucks, the personal finance blog on The New York Times Web site, which has been singling out the companies that gross up and those that do not — the New York Times Company among them.
“We realized that it was the right thing to do and we were in a position to do it, so we did,” said Rex Varner, vice president on the human assets team at Teach for America.
A small number of organizations, including Kimpton Hotels and Cisco, have had the policy in place for several years. But it wasn’t until Google started compensating its employees last June that the movement really began to take off. Apple, Facebook, Barclays, McKinsey and Bain & Company are some of the prominent names that followed suit.
Even more companies have said they publicly support same-sex marriage or equal financial treatment for gay couples, but they haven’t gone as far as adopting the policy.
About 58 percent of Fortune 500 companies extend domestic partner coverage to employees with same-sex partners, according to the Human Rights Campaign. But when you look at a broader group of companies, the numbers shrink: Only about 36 percent of large companies, or those with more than 200 workers, offered the coverage in 2009, according to a Kaiser Family Foundation survey. About 20 percent of small companies offered the coverage.
Even as the number of companies that “gross up” increases, they remain a distinct minority. (The online version of this column links to our running list of companies.) In fact, a large group of major corporations joined a coalition, led by the Human Rights Campaign, that supported legislation to eliminate the tax, but most of them don’t gross up their own employees.
Another group of prominent business leaders recently signed an open letter urging New York lawmakers to legalize same-sex marriage, arguing that it would help attract and retain talent. But not everyone on that list, including Lloyd A. Blankfein of Goldman Sachs, for instance, has started to gross up employees within their own offices. That would also, arguably, help attract and retain talent. Both Goldman and Morgan Stanley (whose board chairman, John J. Mack, also signed the letter) said they were reviewing their policies. So we’ll see what happens.
One of the biggest obstacles to adopting the gross up policy has been concern about the cost and legal implications. Will people rush to sign up? Many firms, for instance, decided to make only same-sex employees with domestic partners eligible since opposite-sex couples have the option to marry.
“To spend money to make up for the inequities for our government and our governmental policies is a very significant thing,” said Ross Levi, executive director of the Empire State Pride Agenda, a gay rights organization in New York. “Companies shouldn’t have to be making up for the ways that government is failing its L.G.B.T. people and our families,” he added, referring to lesbian, gay, bisexual and transgender people. That said, he added that the private sector had historically “led government in terms of equality for L.G.B.T. people.”
Generally, it would cost an employer about $2,000 to $2,500 to gross up an employee who incurred extra taxes of $1,200 to $1,500, according to Joseph S. Adams, a partner at McDermott Will & Emery who specializes in employee benefits. The numbers will vary depending on several factors, including the employee’s tax bracket and state of residence. This example assumes a 25 percent federal tax bracket (and includes rough estimates for state, local, and employment taxes for Social Security and Medicare, bringing the total tax rate to about 40 percent).
On average, a typical employee with a domestic partner will pay about $1,069 more a year in taxes than a married employee with the same coverage, according to a 2007 report by Lee Badgett, research director of the Williams Institute, which studies sexual orientation policy issues. (That figure, which is bound to be higher now given escalating health care costs, includes taxes on the benefit itself as well as the money employees would save if they could pay for their benefits using pretax dollars like heterosexual employees can. There is an exception: If the partner is considered a dependent, the extra taxes aren’t levied.)
At Barclays, which began compensating gay employees at the beginning of the year, the team working on the policy considered how it might affect their expenses. But when Barclays looked at the numbers, they concluded the cost was “not material.” And, in any case, they said it was the right thing to do.
“Too often people come with ideas requiring creativity and people start explaining obstacles about why you can’t do it,” said Jeffrey G. Davis, managing director and co-chairman of Barclays’ L.G.B.T. employee group. So they worked with their human resources department to find ways to make it as simple as possible. Instead of reimbursing employees in every paycheck, for instance, they provide a lump sum at the end of the year.
His advice to others who want to lobby their own employers is to “anticipate peoples’ concerns and questions before you go to them for approval, so you have the right answers.”
“That is the biggest part of the effort,” he said.
The Human Rights Campaign has materials on its Web site to help guide employees and their companies through the process, too.
With more companies adopting the more generous policy, others are now looking at whether they’re offering the basics for gay employees. As Cynthia Yeung, a San Francisco resident who is on the steering committee of her employer’s L.G.B.T. group, put it, “When you raise the bar, everyone has to jump a little higher to be average.”