Compensating Gay Public Servants Equally – Good Business Practice?

This month, Cambridge, Massachusetts becomes the first US city to give married gay employees a stipend to help defray federal tax on health insurance.  The quarterly rebate to nearly two dozen workers covers taxes paid by these public servants on the value of health benefits their spouses receive from the municipality.

Cambridge city councilors made this move with equality in mind. Lesbian and gay employees get the same health insurance as their straight colleagues but have to live with a federal tax penalty for gay unions (which have been legal in Massachusetts since 2004). On average, gay employees with domestic partners or spouses pay $1,070 per year more in taxes on health insurance benefits than married straight workers with the same coverage.

Some private companies have been offering partner benefits, including health insurance to employees in gay domestic partnerships or unions.  At least a third of employers in all and half of employers with 5,000 or more workers extend benefits to employees’ gay partners. That includes such Fortune 500 giants as Bank of America, Coca-Cola, Dow Chemical, General Electric, Lockheed Martin, Microsoft, Northrop Grumman, Raytheon, UPS, Walt Disney Co. and 276 others.

Some corporations also now compensate gay employees for federal tax on health coverage. Cisco Systems and Google and 19 other firms have sought ways to address the tax burden on lesbian and gay workers. Their main goals are strictly practical–worker recruitment and retention.

The UCLA-based Williams Institute estimates that at least 50,000 lesbian and gay couples have legally wed in California, Connecticut, Iowa, Massachusetts, New Hampshire, Vermont, and the District of Columbia. Another 85,000 lesbian and gay couples have entered civil unions or domestic partnerships in California, New Jersey, Oregon, Vermont, New Hampshire, Washington, and Nevada. These numbers will rise as more enter civil unions in Rhode Island and marriages in New York beginning this month.

As more states legalize gay unions, both public and private employers will have to find ways in this “altered” environment to attract, keep, and compensate lesbian and gay workers. The federal tax penalty for gay couples is steep enough to drive some potential new hires or trusted old hands to look for work elsewhere.

Originally posted on the Urban Institute’s MetroTrends Blog, July 15, 2011.

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