Offering stipends vs. salary increases vs. HRAs

By Chase Charaba on April 21, 2026 at 9:00 AM

Raises are a common way to acknowledge your staff's hard work. But they're no longer the only option. Today's workforce increasingly values employee benefits. A Selerix Employee Benefits Survey¹ found that benefits matter as much, or more than pay, to 73% of employees.

As expectations shift, employers are rethinking how they support their teams. While salary increases remain an important way to recruit and retain top talent, alternatives like stipends and health reimbursement arrangements (HRAs) offer more targeted ways to deliver value.

In this article, we'll explain how these options compare and which one makes the most sense for your organization.

In this blog post, you'll learn:

The key differences between stipends, salary increases, and HRAs.
How stipends and HRAs offer flexibility and personalization.
How HRAs provide a tax-advantaged way to support employees' medical needs.

What is a stipend?

A stipend, sometimes called a lifestyle spending account, is a fixed amount of money employers offer their employees. Employees can use their stipend to help pay for various expenses. Common expenses stipends can include those for work, travel, living, wellness, and more.

Employers who offer a stipend typically provide it as a one-time payment or provide funds regularly.

For example, you could offer a:

Annual $300 home office improvement stipend for remote workers
Monthly $80 cell phone stipend for remote workers
Monthly $120 healthcare stipend or health insurance stipend
Monthly $80 professional development stipend
Monthly $60 transportation stipend
Monthly $50 employee wellness stipend

Employers often offer stipends as an employee benefit because they provide flexibility, allowing employees to use their allowance to best suit their individual needs. Instead of an employer selecting a one-size-fits-all benefit, stipends empower employees with more control over how they use their benefit funds.

Do you have to pay taxes on stipends?

Like regular direct compensation, the Internal Revenue Service (IRS) considers many stipends taxable income. You may also be responsible for any payroll taxes associated with this extra income. Any stipend amount you pay out to employees should reflect as an extra line item on your employees' paychecks.

Generally, IRS guidelines also require employers to withhold Social Security and Medicare taxes from employees' wages. Business owners must pay their share as well².

Employees must pay federal income taxes on stipend money. Federal income tax calculations use the wages earned over the pay period and Form W-4 details. The employee will also cover local and state taxes.

Why would companies offer a stipend instead of extra pay?

One reason employers may choose a stipend over a salary increase is that employees prefer it. According to the Human Workplace Index³, 63% of U.S. workers would leave their current position for a job opportunity offering better benefits but the same pay, or even a lower salary.

Additionally, a 2024 PeopleKeep Benefits Survey found that 81% of employees say an employer's benefits package is an important factor when considering a job.

A recent study⁴ also found that only 39% of employees believe their company's benefits address their physical health. Providing your staff with health and wellness stipends is more crucial than ever in 2026.

With a stipend, you can provide your team with an employee benefit that's more personalized and flexible than traditional, defined benefits options. For example, instead of selecting a single wellness benefit for all employees, you could offer a wellness stipend that allows each team member to spend the funds on what matters most to them.

Can you pay employees a stipend instead of a salary?

You can't offer a stipend to a regular worker instead of hourly wages or to a W-2 salaried employee. All U.S. employers must follow their state's minimum wage requirements.

But there are situations where you may give stipends to workers who are ineligible for regular salaries. These are positions where the person benefits from the work more than the employer because the focus is mainly on learning.

The following are common types of stipend recipients⁵ :

Research professionals
Graduate students
Interns
Apprentices
Fellowships
Clergy
Job trainees

Stipends don't replace annual salary increases for long-term employees. But you can leverage them as an employee fringe benefit in place of traditional options. They can provide financial assistance to your staff while helping you shine in a competitive job market.

While stipends can be an excellent benefit option, they can run into compliance and tax issues, especially for medical expenses. Below, we’ll explore another flexible option for individual health insurance premiums and healthcare costs.

How a tax-advantaged HRA can support your employees' medical needs

If you want to offer your staff a tax-free benefit that offers as much flexibility as a stipend, consider an HRA. With a stand-alone HRA, employers give their employees a monthly allowance that employees can use to pay for qualified medical expenses and individual health insurance premiums. Once your employees make an eligible purchase, you reimburse them tax-free for the cost.

An HRA lets you set a budget-friendly allowance. You can also decide what medical expenses to allow for reimbursement, like health insurance premiums only. Then, your employees buy the healthcare services and items they need.

With PeopleKeep by Remodel Health, you can offer two of the most popular stand-alone HRAs:

The individual coverage HRA (ICHRA): The ICHRA works for employers of all sizes, has no maximum contribution limits, and allows for customization using employee classes. You can also adjust allowances by age and family status. Your staff must have a qualifying form of individual health insurance to participate.
The qualified small employer HRA (QSEHRA): The QSEHRA is for employers with fewer than 50 full-time equivalent employees (FTEs) who don’t offer group health insurance. While it has maximum contribution limits, it has no minimum limits. Employees must have a healthcare plan with minimum essential coverage (MEC) to use the benefit. Employers can customize allowances by employee age and family size.

What are the differences between stipends, salary increases, and HRAs?

While stipends and wage increases provide extra compensation to employees, they work differently. Below, we'll discuss the four main differences between a stipend, a raise, and an HRA.

1. How employees can use them

Stipends are generally tied to certain categories. However, when it comes to health stipends, employers can’t legally require employees to use their funds on healthcare. With salary increases, employees can spend that money however they want. HRAs only reimburse employees for qualified medical expenses.

2. Tax treatment

Stipends and salary increases are taxable. HRAs are tax-free to employers and employees.

3. Flexibility and customization

Stipends offer some flexibility since employers can vary them by category. Employers can customize raises, but have no control over how they're used. HRAs are highly customizable with defined allowances that employers can vary based on employee class, age, and family size.

4. Cost control

Stipends are predictable, but often fully paid out. Salary increases are a permanent increase to payroll. Employers only reimburse HRA-eligible expenses as they're incurred by employees. Unused HRA funds stay with the employer. An HRA is the right choice for you if you want to limit your health benefit spend to only eligible expenses while ensuring employees enroll in health coverage.

5. Federal compliance for health benefits

If you plan to use a stipend or wage increase to help employees pay for medical expenses instead of offering health coverage, you need to be aware of potential compliance issues. If your organization has 50 or more FTEs, the ACA requires you to offer health coverage to at least 95% of your full-time employees and their dependents. This coverage must be affordable and meet minimum value.

A stipend or wage increase doesn’t satisfy the ACA’s employer mandate for healthcare. However, offering an affordable ICHRA allowance does.

Stipend vs. salary increase vs. HRA comparison chart

	Salary increase	Stipend	HRA
What is it?	Salary increases are extra wages employees earn. Employers often use them to compensate workers for increased living expenses.	A stipend is a fixed amount of money employers give employees to cover specific out-of-pocket costs.	An HRA is an employer-funded health benefit that reimburses employees tax-free for eligible medical expenses.
How do employers manage it?	There is no management for salary increases. The employer doesn't control how the employee uses the raise or bonus; employees can use the money however they want.	Employers can offer a stipend as a one-time bonus or regularly, like on a monthly basis. They can also use a reimbursement model to control eligible expenses, define employee classes, and vary allowance amounts. However, this doesn’t apply to medical expenses.	Employers set their own budgets and reimburse employees up to their set monthly allowance amount.
When do employers pay their employees?	Employers pay workers on their usual paycheck regardless of whether they need or want the extra income for the intended benefits.	If the stipend is a one-time payment or occurs regularly, employers can pay it on their usual paycheck or on another defined date. With the reimbursement model, employers only pay for approved expenses when employees request a payment. Employers keep the excess allowances.	Employers only pay employees after they submit eligible medical expenses for reimbursement.
What are its tax implications?	The employer must pay payroll taxes and withhold Social Security, Medicare, and income taxes.	The employer pays payroll taxes, and employees pay income taxes.	Tax-free for both employer and employee. Employers don't pay payroll taxes, and reimbursements aren't counted as employee income.

Conclusion

When deciding how to update your compensation strategy, there are several options to choose from. Stipends, salary increases, and health reimbursement arrangements (HRAs) each offer distinct advantages depending on your goals. Stipends offer flexibility, raises provide simplicity, and HRAs deliver a powerful combination of personalization and tax savings.

Are you ready to offer personalized health benefits to your employees? If so, PeopleKeep by Remodel Health can help! Our HRA administration software allows businesses of all sizes to manage flexible and customizable HRAs in just a few minutes each month. Get in touch with one of our HRA specialists to learn more!

This post was originally published on February 23, 2022. It was last updated on April 21, 2026.