Guide to Employee Stipends
Are you looking to boost your employees’ total compensation with fringe benefits? Or, are you looking to replace in-office perks for a virtual team? Employee stipends might be right for your organization. Get everything you need to know about employee stipends in our complete guide below.
Ready to offer stipends to your employees?
Are you looking to better attract and retain your employees?
In today’s tight labor market, employers must do more to recruit and retain top talent and meet employees’ increasing expectations for comprehensive and personalized benefits. While salaries and traditional benefits like group health insurance and retirement plans are still important to workers, their needs have changed.
According to our 2022 Employee Benefits Survey Report, 82% of employees said an employer’s benefits package is an important factor in whether or not they accept a job.
To effectively hire and keep your employees, you need to offer a standout benefits package that addresses their individual needs.
With employee stipends, you can build inclusive and personalized lifestyle benefits that will enrich your team’s employee experience. You can give your employees stipends to cover the costs of remote work expenses, gym memberships, and other perks to build a competitive employee benefits package that’s easy to administer.
This guide will cover everything you need to know about offering stipends to your workers.
Topics covered in this guide include:
What is a stipend?
Employee stipends, sometimes called fringe benefits, lifestyle benefits, or lifestyle spending accounts (LSAs), are a fixed amount of money offered to employees to help pay for various expenses. You can think of stipends as monthly allowances—a flat amount budgeted for each employee, which they can spend however they choose.
Traditionally, stipends were offered to graduate students, unpaid interns, and student researchers to help them pay for housing and other education-related expenses. However, any organization can offer them as an extra benefit for employees.
As an employer, you can use stipends to create a truly customized employee benefits package. You can decide which expenses are eligible for reimbursement, how much to offer for each stipend, and more. This gives you complete cost control and flexibility.
How do stipends work?
You can offer your workers an allowance for a specific purpose or expense with a stipend. For example, if your employees want more professional development opportunities, you could offer them a $100 monthly stipend that covers their online courses, textbooks, certifications, and more.
Stipends can be offered on an annual, monthly, quarterly, or on-the-spot basis, and can be paid up-front for employees to use on specific perks, or through reimbursement after an employee incurs the cost of a lifestyle benefit.
As an employer, you can offer stipends for practically any expense category you choose. Because stipends are employer-funded, there are no annual rate increases or participation requirements that are normally found with benefits programs.
Why offer employee stipends?
There are many benefits to offering employee stipends, from improving retention to simplifying your benefits package.
Strengthen your employee experience
Employee stipends help improve the employee experience, making retaining and attracting employees more effective. It can also make your benefits package more inclusive as it caters to the unique needs of your employees. Employees increasingly expect their employer to provide benefits that meet their specific needs. By offering stipends to your workers, you’re creating an individualized benefits program your employees will love.
More control over your benefits and budget
Stipends enable employers to set monthly allowance caps, giving them complete control over their benefits costs. Plus, unlike offering a pay increase or funding an account, reimbursing employees through stipends ensures your benefit dollars are being spent as intended. And, since you can offer a stipend for anything, from meals to cell phone reimbursement, you can design a benefits package that fits your organization's and your employees' needs.
By administering your benefits through an employee stipend platform, you can keep all your perk benefits in one place, making it easy to offer and manage different types of reimbursements. No matter how many stipends an employer offers, all of them can be administered in one place—no need to juggle multiple vendors.
Employees get more choice
Your workers also enjoy flexibility with stipends, as they can choose where they spend their stipend allowance. They aren’t restricted to specific vendors, giving them more freedom to use their benefits how they want to. For example, instead of employees being forced to use a gym near your workspace, they can get reimbursed for gym memberships at any facility that works best for them.
Are employee stipends taxable?
A question many employers have is whether or not stipend payments are taxable. It depends on how you structure your benefits program and what expenses you reimburse employees for.
Most stipends, such as health and wellness stipends, are considered taxable income because they are essentially additional compensation for employees. Employers may need to withhold any federal, state, or local income taxes, and employees will be taxed on the amounts reimbursed. As stipends aren’t considered wages, Social Security and Medicare taxes aren’t required to be withheld. Taxable stipends appear as additional income on employees’ tax returns.
Other stipends may be considered tax-free or tax-advantaged. You’ll want to reference IRS Publication 15-B to see what fringe benefits qualify.
Whether you offer a tax-free or taxable stipend, you’ll want to use a stipend administration platform to keep track of your expenses and store employee receipts in case the IRS audits you. Many stipend administration platforms can work as an accountable plan.
You should consult with your accountant or tax professional for more information on how you can offer tax-free employee stipends.
What types of stipends can I offer?
You can offer stipends for almost any expense or perk you can think of. You can customize your stipend program to fit your company culture, values, and the needs of your unique workforce. Dating app Hinge offered its New York employees a $200 monthly stipend for dates, while Seattle-based Rover, a dog-walking app, offers its employees a $1,000 one-time stipend for adopting a dog or cat.
While these stipends are unique to their respective organizations, they’re excellent examples of how you can customize them to fit your organization. To illustrate the types of stipends you could offer your employees, here are some common types of stipends and what they cover.
Health and wellness stipends
Health and wellness stipends can help you create a holistic wellness program by reimbursing your workers for their health and wellness-related expenses.
You can offer a taxable health stipend to reimburse your employees for their out-of-pocket medical expenses and health insurance premiums. However, you can’t require employees to submit receipts or invoices for any items included in IRS Publication 502 as this would trigger regulations regarding HIPAA, the Employee Retirement Income Security Act of 1974 (ERISA), and the Affordable Care Act (ACA).
A tax-free alternative to a health insurance stipend is a health reimbursement arrangement (HRA). This IRS-approved and employer-sponsored benefit allows you to reimburse your employees for their qualifying medical expenses, including out-of-pocket costs and sometimes health insurance premiums, depending on the HRA offered.
Instead of offering a health stipend, you can offer your employees a wellness stipend to reimburse them for any wellness-related expenses. This is an excellent way to encourage employees to live healthier lives, making them more productive in the workplace. It also allows you to better support your employees' holistic well-being.
Common wellness expenses and services that can be reimbursed under a wellness stipend include:
- Mobile apps (such as those for sleep tracking, meditation, fitness, and more)
- Gym memberships
- Exercise or yoga classes
- Wearables and devices for tracking fitness activity
- Home exercise equipment
- Mental health counseling
This allows you to provide a completely customizable and cost-effective wellness program.
Remote work stipends
A popular stipend among employers is a remote work stipend. This allows you to reimburse your employees for their work-related expenses. While remote work is a popular benefit for employees today, remote workers may not have access to the same resources and perks as in-office employees.
With a remote stipend, you can ensure your entire workforce has the support it needs to be successful and productive. Your employees may need ergonomic chairs to support the long hours spent sitting at their computers. Or they might need a second monitor to multitask better. You can help your employees acquire what they need with remote employee stipends.
With a remote work stipend, you can reimburse employees for the following:
- Home office set-up costs (such as desks, chairs, equipment, software, and more)
- Office expenses
- Coworking space memberships
- Cell phone bills
- Internet access costs
Depending on where your employees live, you may be required to reimburse them for their work-related expenses, including cell phone and internet access costs. Providing work-from-home stipends to employees makes it easy to comply with state and local laws.
Professional development stipends
Offering a professional development stipend is an excellent way to upskill your workforce in addition to on-the-job training. Also called a learning stipend or an education stipend, this benefit allows you to reimburse your employees for various educational expenses, including online courses, tuition fees, textbooks, and more.
This is a great way to show your employees you care about their career growth. Investing in your workers’ career development can also attract and retain employees who want to further their skills in a particular field.
With a professional development stipend, you can reimburse employees for expenses like:
- Educational assistance
- Student loan repayment programs
- Training costs
Commuter and transportation stipends
Employees who work in-office or at your business location must commute to work. Not only is commuting to and from the workplace time-consuming, but it can be costly. To help your employees with commuting costs, you can offer a commuter stipend. This allows you to reimburse employees for various transportation-related or travel expenses.
You can also use your transportation stipend to align with your company goals. For example, if reducing your environmental impact is vital to your organization’s mission, you can offer a stipend for transit passes or bike sharing and maintenance to encourage employees to find greener ways to commute.
Or, if your employees have to drive to work, you can offer a stipend to reimburse them for gas.
You can reimburse employees for the following with a commuter stipend:
- Parking fees
- Transit pass and fares
- Bike sharing programs
- E-scooter sharing programs
- Vehicle maintenance
Another popular option is a meal stipend. Some employers use a food stipend to reimburse employees for the cost of meals while at work, such as ordering lunch. However, others offer it as a general perk for employee food expenses.
You can reimburse employees for the following with a meal stipend:
- Meals at work
- Dining out
Rewards and recognition program stipends
You can also offer a stipend to recognize your employees’ hard work. For example, you could give your employees a one-time stipend they can use for any expenses they want as a way to say thank you. Or you could offer a stipend for vacations, leisure activities, and more. This is a more meaningful and structured way to reward your employees instead of handing out gift cards or company swag.
Other types of stipends
There’s no limit to the types of stipends you can offer to your workforce. Here are some other options for your benefits package.
Other stipend ideas include:
- Housing stipends to support living expenses for employees with mortgages, rent, or moving
- Book stipends to promote reading and learning
- Childcare or dependent care stipend
Get our free guide: How to set up personalized employee benefits in an hour
Who can offer stipends?
Any employer with employees or contractors can offer stipends, including nonprofit organizations. So stipends can work for your needs, whether you’re a small business looking to stretch your benefits dollars or a large company committed to HR innovation and benefits expansion.
However, you can’t offer a stipend to any W-2 employee instead of a regular salary or hourly wages. Stipends are intended as an extra perk.
Who is eligible for stipends?
It’s up to you! Reimbursable stipends are completely customizable, so you set the rules for which of your employees are eligible to participate. This includes full-time employees, part-time workers, international employees, and independent contractors.
How to administer an employee stipend program
If you’re looking to offer employee stipends to your employees, we can help. At PeopleKeep, we’re experts on personalized benefits and help thousands of organizations reimburse their employees through employee stipends and HRAs.
Administering your benefits is simple with our WorkPerks stipend administration platform.
Here’s a five-step breakdown of the process:
Step 1: Decide on your goals
First, decide what you want to accomplish with your employee benefits. Are you trying to recruit new employees? Do you need to offer more robust benefits to stand out against the competition? Are you looking to replace in-office perks for a new remote team? The answers to these questions will help you choose the right benefits for your organization.
Step 2: Design your benefits package
Once you’ve honed in on your goals, you’re ready to design a benefits package tailored to your organization's needs. This includes choosing what kind of stipends you want to offer and how much you’d like to offer your employees.
With WorkPerks, you can easily set up customized allowances for each stipend or offer a single allowance for all your perks. You can choose to offer an annual, quarterly, or monthly stipend, set benefit end dates, and customize benefits and allowances by employee class.
Keep in mind that if you want to offer different benefits to different groups of employees or offer unique allowances, you’ll need to follow anti-discrimination rules to keep your benefit compliant.
Step 3: Communicate the benefit to employees
Before you launch your benefit, you’ll want to communicate and engage with your employees on the roll-out of your new benefits. One key communication step is to send a notice to your employees letting them know about your new stipend offerings. Your notice should include things like what stipends you’re offering, when the benefit will start, and how much of an allowance you’re offering.
With WorkPerks, you’ll be able to invite employees from our platform. We’ll automatically send a notice to each of your eligible employees with the details of their benefits.
Step 4: Review and reimburse expenses
Once your stipend program is up and running, your employees will submit expenses for approval. After the expense is submitted, you can review the documentation for the expense to ensure it’s how you intended your employees to spend their allowances.
After you approve or reject employee expenses, you’ll pay your employees for their qualified expenses. Most employers choose to reimburse employees through payroll by adding a separate line item to the payroll check. However, admins may also process a separate payment via cash or check.
WorkPerks lets you easily see which expenses need approval and which need to be reimbursed to your employees. Employees submit their receipts from their accounts, allowing you to quickly verify eligible expenses.
Step 5: Analyze usage
Finally, after you’ve offered your stipends for a while, it’s a good idea to analyze employee engagement and participation rates to ensure your employees are making the most of their benefits. Which stipends are being used the most? Are employees using their total allowance amount? How many expenses are being submitted each month?
You can easily see this information on your PeopleKeep dashboard, including the total amount reimbursed to your employees.
By keeping a close eye on these metrics, you’ll be able to measure the success of your benefits to ensure they’re achieving the goals you set up in the first place. And if they’re not, you can better determine what changes need to be made to realize your goals.
“Our employees are satisfied with PeopleKeep. And as an added bonus, we believe offering the QSEHRA and WorkPerks stipend together has improved retention efforts.”
Frequently Asked Questions
How do stipends differ from business expenses?
While stipends can include work-related expenses such as office equipment and internet access, some key differences exist. For instance, they can also include expenses for your employees’ personal use outside of work, such as gym memberships, wellness apps, and mental health counseling.
Where is the money held for stipends?
Stipends don’t require employers to pre-fund an account. Employers using WorkPerks with PeopleKeep only need to add a line item to employees’ paychecks when reimbursing them for expenses.
Can employees choose where to spend their allowance?
Yes! Unlike other employee benefits solutions, employees aren’t limited to a set marketplace of vendors they need to shop from with WorkPerks. Employees are welcome to make purchases from anywhere, so long as the expense itself is eligible for reimbursement, as determined by the employer.
What makes employee stipends with PeopleKeep different?
PeopleKeep’s stipend administration software makes it possible for organizations of all sizes to enrich and expand their benefits. Learn how you can provide custom perks in minutes each month with WorkPerks.