Generally, no. With the exception of some city ordinances, companies are not required to offer benefits to a domestic partner of an employee. One major change occurs on January 1, 2005 when California will start requiring employers to offer domestic partner benefits. Recent legislation in California extends the rights and duties of marriage, including the right to employee benefits, to persons registered as domestic partners. It may signal a trend that other states will follow.

Even so, an increasing number of companies voluntarily offer domestic partner benefits. Why are they doing it? Offering domestic partner benefits can strengthen a company’s image as an innovative employer and foster diversity in the workplace. These can translate into greater employee loyalty and engagement. Some surveys suggest that about one-third of America’s largest companies offer domestic partner benefits.

Many employers offer the same benefits to domestic partners that they offer to employees’ spouses and on the same terms. Alternatively, employers may choose to limit the offerings to health insurance or specific benefits, such as bereavement leave.

Eligibility

You need to define who is a domestic partner. Should benefits be limited to domestic partners who cannot marry under state law or should benefits be offered to all partners? Remember, not all domestic partners are same-sex couples. A man and woman may prefer not to marry and live as domestic partners for economic reasons.

Typically, employers offering domestic partner benefits require that domestic partners:

• Be over age 18
• Have an exclusive, committed relationship;
• Reside in the same home (sometimes for a minimum period of time);
• Share financial obligations; and
• Plan to remain each other’s sole domestic partner indefinitely.

Verification

You may want proof of the relationship. Some employers require employees to submit a written affirmation of the partnership or documents that confirm the partners reside at the same address. Employers should be careful that proof of the relationship is relative and not an invasion of privacy.

Tax treatment

Domestic partner benefits will be tax-free if the employee’s partner qualifies as a dependent. Otherwise, the benefits are taxable to the employee.

Qualifying as a dependent is not easy. Generally, a dependent is a family member who receives more than one-half of his or her support from the taxpayer. To qualify as a dependent, four tests must be satisfied. They are similar to the characteristics of a domestic partner relationship.

• The employee provides more than one-half of his or her partner’s annual support;
• The domestic partner is a member of the employee’s household;
• The domestic partner’s principal abode is the employee’s residence; and
• The relationship between the employee and the domestic partner does not violate local law.

Several bills have been introduced in Congress to make domestic partner benefits tax-free. Benefits provided to an employee’s domestic partner would be treated the same as benefits provided to an employee’s spouse. The proposed legislation would not require employers to offer domestic partner benefits; only change the tax treatment of those benefits.

If you are contemplating extending benefits to domestic partners of your employees, give our office a call. The laws affecting domestic partners vary from state to state and change from year to year. We can help you understand the rules and craft a policy that best fits your company and your employees.