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What are flexible benefits?

Employee Benefits • April 5, 2023 at 8:54 AM • Written by: Elizabeth Walker

There are five generations in today’s workforce. To address their wide range of needs, an employer’s benefits package must include more options than many traditional benefits offer. By offering flexible benefits you can better attract and retain your employees by allowing them to tailor their benefits to work best for them and their families.

If you think flexible benefits are too complicated or expensive to provide, you’re in luck. Not all flex benefits are monetary, and the ones that are can be budget-friendly enough to work for any employer. Plus, with good benefits administration software, you can easily manage your employee perks without administrative headaches.

To help you get started, this blog will go over the ins and outs of flexible benefits, including common types, why they’re important, and how you can offer them at your organization.

Learn more about fringe benefits and how you can personalize them in our guide

What are flexible benefits?

Flexible benefits are perks and other forms of compensation that employees can choose to participate in and customize according to their individual needs. Unlike more traditional voluntary benefits, employees typically don’t pay extra to receive these perks.

Flex benefits are so-named because they can be adapted to cover the things that matter most to employees, unlike traditional benefits. In some cases, depending on how a flexible benefits plan is structured, employees may receive a cash payout instead of opting into a perk.

Many flexible benefits plans work on a reimbursement basis. Employees receive a monthly or annual allowance, typically in the form of a lifestyle savings account (LSA), and pay for the benefits, products, and services of their choosing. Employers then review employee expenses and reimburse them for the cost.

However, some benefits can be pre-funded. For example, individuals with a health savings account (HSA) typically use an HSA debit card to pay for eligible items. Therefore, ensuring your employees know how each benefit works is important to get the most use out of their perks.

Why should you offer flexible benefits?

Flexible benefits are popular among workers and employers because they’re inclusive. They allow every employee the freedom to use their benefits package in the way that works best for them and their family, giving them more control over their total compensation. Not only does this flexibility increase employee satisfaction, but it makes your organization more attractive in a competitive job market.

Three other advantages of offering a flexible benefits plan at your organization are:

  1. It increases employee recruitment and retention: A flexible benefits package that gives your employees more choice is a sure way to attract top talent and keep your current staff engaged and happy. A MetLife study1 found that 72% of employees said having personalized benefits increases their loyalty to their employer, making turnover less likely and job seekers more interested in joining your company.
  2. It gives employees control over their benefits: Flexible benefits allow employees to make their own choices. For example, working parents may want nanny benefits, while older employees may want a robust retirement benefit. With a flexible benefits plan, all your workers can get the services and products they need. And because they usually come at a discounted rate, your workers will experience more financial stability too.
  3. Many flexible benefits are tax-free or tax-advantaged: Some flexible benefits may be funded through pre-tax dollars, which lowers both your and your employees’ tax liability. You can determine the taxability of your benefits by referencing IRS Publication 15-B2.

Common examples of flexible benefits

There are many types of flex benefit offerings available, so it can be overwhelming if you’re redesigning your compensation package. If you’re unsure where to start, you can survey your employees to find out which benefits they want the most. This would ensure you get the best bang for your buck, as your employees would be more likely to use them.

However, there are a few perks that most employees are looking for in a modern and flexible workplace. Let’s go over six popular examples below.

1. Health benefits

Group health insurance plans remain the most common coverage option in the U.S. However, it’s not very flexible for diverse workforces, and its cost continues to rise. Luckily, many new flexible health benefits options exist that are both budget-friendly for employers and personalized enough for employees.

Four flexible health benefit options include:

  1. Health reimbursement arrangements (HRAs): A health reimbursement arrangement is an IRS-approved, employer-funded health benefit designed to reimburse employees, tax-free, for over 200 out-of-pocket medical expenses and sometimes health insurance premiums. Some HRAs have annual contribution limits, but not all do, so they’re flexible enough to meet every employer’s needs. Additionally, HRAs are employer-ownedaren’t pre-funded, so any unused allowances stay with you.
  2. Health savings accounts (HSAs): Similar to HRAs, an HSA is used to pay for medical services and other qualifying out-of-pocket medical expenses. HSA contributions use pre-tax dollars; however, both the employer and the employee can contribute to the account up to an annual limit. Contributions can only be made when the employee is covered by an HSA-qualified high-deductible health plan (HDHP), and any contributed funds stay with the employee even if they leave your organization.
  3. Flexible spending accounts (FSAs): A flexible spending account also enables employees to use pre-tax money to pay for healthcare expenses. Employer and employee contributions are allowed up to the IRS-defined annual limit3. Unlike HSAs, FSAs funds don’t roll over from year to year, and employees don’t take the account with them if they quit or retire from your company.
  4. Dental and vision insurance: Dental and vision plans are supplemental insurance benefits. Group and individual health plans don’t typically cover dental or vision costs. So if you’re offering a group health plan or an HRA, you may want to provide a dental or vision benefit to better support their overall health.

2. Stipends

Stipends are a fixed amount of money given to employees to use on whatever they choose. Unlike many other flex benefits, most stipends are taxable to employees. Stipends typically work on a reimbursement model: you give your employees a monthly or annual allowance, and once they make a purchase, you reimburse them for the expense.

You can offer a stipend for any services or expense categories you think your employees will like. For instance, you can offer a health stipend to pay for eligible expenses their medical insurance doesn’t cover. Or you can provide a remote work stipend to help them cover the cost of their home office equipment.

If you have employees interested in fitness, a wellness stipend can reimburse them for gym memberships, yoga classes, or even wearable health trackers. You can even offer additional stipends that cover the cost of pet insurance, professional development, student loan reimbursement, meals, and more. Simply let your employees pick and choose the benefits they want most.

Stipends are typically less regulated than other benefits. While this makes them especially flexible for employees, it could enable employees to use their stipends in ways you didn’t intend. For example, if you give your employees a health stipend, they’re not required to use it on healthcare items, and you can’t require receipts for insurance premiums, medical services, or prescriptions.

3. Transportation benefits

Transportation, or commuter benefits, are perfect examples of flexible perks because they can be adapted to each employees’ needs. Not every employee works in-office or has a long commute. But for those that do, this benefit is especially valuable.

Commuter benefits help employees cover commuting costs, such as mass transit costs for passes, tokens, or vouchers, carpooling, and parking expenses.

Transportation perks can be offered on a pre-tax or post-tax basis. If you want to provide commuter benefits pre-tax, the IRS has guidelines for employers to do so compliantly.

4. Childcare and elder care services

Childcare expenses can rack up over time. Luckily there are a few ways you can assist your employees with children.

You can better support working parents with a childcare stipend, a dependent care FSA, or a partnership with local daycare providers to provide childcare at a reduced cost that they can use while they’re at the office. To be truly inclusive, you should also consider adding fertility benefits, adoption assistance, and nanny benefits to your compensation package as well.

Childcare is important, but don’t forget about elder care. According to research4, employees spend an average of four years caring for an aging loved one. Additionally, 70% of caregivers step back from their careers to some degree to provide elder care.

By offering employees an elder care benefit, they can provide better care for their families, have stronger financial stability, and feel more secure in their professional lives.

5. Retirement plans

Traditional IRA plans, 403(b), Thrift Savings, and many 401(k) plans use pre-tax money. This means that employees can reduce their tax liability by contributing pre-tax dollars toward retirement.

Aside from the tax benefits, retirement plans can also be funded through employer matching contributions They also have higher contribution limits for older employees and protection from creditors, making them a vital investment tool.

Retirement plans are seen as a core benefit that most employers offer. But, unsurprisingly, older employees tend to value them more than younger employees. That’s why offering them as a flexible benefit is a great way to make sure all your employees have the option to participate in them if they choose.

6. PTO and flex work schedules

Not all benefits are monetary. In fact, robust PTO policies and flexible work schedules are rising in popularity now.

Where traditional time off policies grouped leave into different categories, PTO is now defined as any time employees are paid when they’re not working, such as vacation, sick time, personal time, and holidays, into one category.

PTO can be given as a set number of days, rolled over from year to year, accrued based on hours worked, or given on an unlimited basis to give employees maximum flexibility.

In addition to PTO, employers can offer flexible scheduling that allows employees to arrange their work hours that best meet their needs. This can include allowing employees to work remotely, use a hybrid model, opt for a 9/80 schedule, or work outside regular hours, such as from 6 a.m. - 2 p.m.

Both PTO and flexible work options help employees improve their work-life balance. When your employees feel you trust them enough to give them this level of control, you’ll see greater employer confidence, engagement, and productivity throughout your organization.

How you can offer flexible benefits

Offering flexible benefits doesn’t have to be complicated. Nowadays, you can use many benefits administration tools to make managing your benefits quick and easy. Some even integrate with your payroll systems and help you track federal, state, and local regulations so your organization remains compliant.

For example, if you’re interested in offering an HRA, PeopleKeep’s administration platform is the way to go. PeopleKeep’s software makes it simple for employers to manage their HRA in minutes per month because we automate many tasks like preparing and updating your legal documents, reviewing reimbursements, storing necessary receipts and invoices, and more.

While offering a stipend is less regulated than a more formal benefit like an HRA, it still requires a certain amount of administration. Luckily, PeopleKeep’s WorkPerks software solution has you covered there too. Businesses of any size use WorkPerks to easily administer a variety of flexible perks, like wellness, professional development, and remote work stipends that your employees will love.

Because you can offer an HRA and a stipend simultaneously, you can use PeopleKeep to administer your benefits on one platform to reduce the hassle of needing multiple vendors. And with our award-winning customer support team, we're here for you if you or your employees have questions as you navigate your benefits journey.


A competitive employee benefits package shouldn’t be one-size-fits-all. To be inclusive and attract and retain the best employees, you need to offer flexible benefits. Not only will flex benefits increase employee satisfaction and productivity, but it will show you’re an employer of choice with a company culture that puts your workers first.

If you’re looking to set up flexible benefits like an HRA or employee stipend at your organization, PeopleKeep can help. Schedule a call with one of our personalized benefit advisors, and we’ll help you set up flexible benefits for your organization.

1. https://www.metlife.com/content/dam/metlifecom/us/ebts/pdf/MetLife-Employee-Benefit-Trends-Study-2019.pdf

2. https://www.irs.gov/pub/irs-pdf/p15b.pdf

3. https://www.irs.gov/pub/irs-drop/rp-22-38.pdf

4. https://www.brighthorizons.com/child-care/employee-child-care-benefits

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Elizabeth Walker

Elizabeth Walker is a content marketing specialist at PeopleKeep. She has worked for the company since April 2021. Elizabeth has been a writer for more than 20 years and has written several poems and short stories, in addition to publishing two children’s books in 2019 and 2021. Her background as a musician and love of the arts continues to inspire her writing and strengthens her ability to be creative.