As more companies turn to health and wellness stipends (also called a wellness allowance or wellness spending accounts) to better suit their employees' health journey, more questions arise.
That's why we developed the definitive guide to everything you need to know about health and wellness stipends:
A health & wellness stipend is a taxable benefit paid to employees for them to cover their wellness expenses.
Further details on what they are:
They are also referred to as Wellness Allowances or Wellness Spending Accounts.
They are taxable health benefits. Taxes can be grossed up by the employer or employees can cover the taxes.
Employers can decide what to cover, including physical, mental, or financial wellness needs, depending on the type of wellness program you design. Some people use them to cover a fitness or gym reimbursement.
As with all stipends, they can be given to employees on a monthly, quarterly, semi-annual, or annual basis.
What they are not:
Health Savings Account (HSA)
Flexible Spending Accounts (FSA)
A health insurance stipend
A stipend that is reimbursed through a typical business expense software since these are taxable purchases.
Invest in employee well-being with a health and wellness stipend
Based on research, conversations, and market trends, one thing is clear:
The companies that achieve the most productivity and success are the ones that are most innovative, the most focused on employees’ needs, and the most driven to help the employees succeed at work and in life.
If you don't currently offer a health and wellness stipend to your employees, you might be wondering, "Why do employers offer wellness programs to their employees?"
Well most companies and its employees agree, supporting an employees' health and wellness is considered a requirement nowadays.
However, the real benefit of a wellness initiative like stipends is when they are leveraged at scale, because there is less administrative effort and offer more personalization for the employees at your company.
That's why many organizations are turning to stipends like health & wellness stipends to support their employees.
Benefits of health & wellness stipends include:
Employees are healthier and happier when stipends are offered
The reason that your employees will love a stipend is because they get to choose what being “healthy” means to them and how to achieve it best. They know what it means to live a healthy liefstyle for themselves, and this makes it easier for them to do so.
For example, while some people may love hiking outdoors, others may prefer to do group fitness classes. And others might prefer a stretch session or new pair of running sneakers.
Stipends offer personalization of the benefits, but they also adapt as your people evolve. How people get healthy might change over time as well as preferences or their lives change.
Lastly, when employees are happier they are more likely to stay with your company which means higher employee retention and lower turnover costs.
Save company money & get more value on what they do spend
There are many ways that a stipend approach to wellness will save your company money.
First, according to the Centers for Disease Control and Prevention (CDC), workplace wellness programs that focus on prevention and health promotion lead to 25% savings each on absenteeism, health insurance costs, and workers’ compensation and disability management claims costs. These programs often include initiatives like health screenings, preventive care, fitness programs, and chronic disease management.
Additionally, leveraging the stipend approach will save money. When employers select the specific perks for employees, employees aren't likely to use them since it’s not what they'd prioritize or purchase given the opportunity to pick for themselves. Wellness is so unique to each person and also changes throughout life, for one person health might mean meditation, to another it might mean a running club, and a third might prefer a family gym membership.
The best employee benefits are the ones which create a win-win scenario where employees are empowered to pick their own perks, and companies don’t spend money on unused perks.
Stipends are easier to manage & fully tax compliant
Gone are the days of HR juggling various health and wellness vendors, on top of every other employee benefit vendor. The stipend approach empowers employees to take control so they can get exactly what they want (and with Compt, HR leaders manage the whole process in 30 minutes a month).
If you're considering software employee perks software, we recommend looking for one which is 100% tax compliant. Your CFO and leadership team will love this, and your reputation for being a big-thinker will grow.
Lastly, while providing perk stipends to employees may not be obligatory, the most successful companies are already onboard. They understand that it's not about the monetary value of the stipend (but let's be real, that part is pretty awesome), but rather the message it conveys: a genuine desire to support their peoples' individual needs. This is precisely what attracts and retains top-tier talent.
“The general rule states that any award or prize given by an employer is taxable to an employee as wage, to be included on their W-2 and subject to federal tax withholdings, as well as Social Security and Medicare taxes,” Robert Frutchey, CPA, a health benefits consultant with Brentwood, Tenn.-based Cowan, a benefits brokerage and consultancy, posted online.
In CCA 201622031, the IRS held that reportable gross income for an employee includes employer-provided cash rewards and nonmedical care benefits for participating in a wellness program.
There is an exception that make these taxable awards nontaxable and that is related to the "de minimis award" rule. The IRS defines a "de minimis fringe" award "as any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable." Which means a company provided gym membership is taxable, but providing employees a tee-shirt isn't.
If you're looking to offer your people a tax compliant wellness stipend, a Stipend Reimbursement Platform like Compt can help. With Compt, organizations create and manage every detail of their wellness stipend (or any stipend program). Schedule a call with a stipend expert today.
How to Offer a Wellness Stipend to Your Employees
Creating a stipend is an excellent way to offer meaningful employee perks. Not only are they easier to set up, but they’re also automated making it less time-consuming to maintain and manage.
Four steps to setting up a health & wellness stipend:
1. Define your budget
Maybe you have an overall budget for the stipend or a budget per person, but having a budget is a necessary step because that is what you’ll be using to define what's possible in terms of a stipend.
2. Determine spending timeframes
Do you want to offer this monthly so you can ensure monthly employee engagement, or do you prefer to offer it on a quarterly, semi-annual, or annual basis? It’s ultimately up to you: if you're unsure or need a little inspiration, check out the examples above in the company examples section.
3. Select an Lifestyle Spending Account (LSA) Vendor
You could also do it manually, but that's going to be much more time-consuming. It's possible to create a spreadsheet where you can manually track individual perk expenses, collect the receipts, track data for your finance department, account for taxes, and note the status of each perk expense. You will also a to include balances for each employee within each time frame.
4. Lastly, invite your employees to spend their wellness funds.
Once they receive an invite and activate their account, they can begin spending based on your program's start date.
Or if you've chosen to track all of this manually, post the requisite information on your company's internal wiki or other internal communication channel, and email notify them.
Custom perk stipend: Companies combine one or more of the stipends above together to create a general perk stipend that gives employees even more flexibility to choose what matters to them.
Learn even more about Employee Stipends
Download the free Lifestyle Spending Accounts Guide to learn why they're the most low-maintenance, budget-friendly, and inclusive benefits for your people.
Frequently Asked Questions (FAQ) on Health & Wellness Stipends
Is a wellness stipend taxable?
Yes, it is. Reimbursements for wellness programs are taxable and should be included in an employee's gross income. This includes all items purchased through a stipend such as gym memberships, fertility support, supplements, wearable technologies, and more.
Is a wellness stipend considered a fringe benefit?
Yes, it is. Fringe benefits are lifestyle benefits, and include comprehensive wellness benefits like wellness stipends.
Does IRS consider stipends income?
Most employee stipends are considered taxable benefits. However, there are a few specific stipends, such as commuter or education benefits, which are tax-free up to the IRS-designated annual contribution limits. To do so, you must establish an accountable plan and follow IRS guidelines.
Are health stipends reported on w2?
The IRS explains that you must report stipends on your employees' Form W-2 as taxable income, and you'll also be required to withhold state and federal taxes.
Editor's note: This guide was originally published in September 2019 and has been updated for comprehensiveness.
Sarah Bedrick
Chief Marketing Officer
Prior to Compt, Sarah worked at HubSpot for 6+ years, where she helped to build, scale, and grow the HubSpot Academy division.
She is obsessed with understanding what makes a company culture great, being a career and life coach to people in tech, and creating cherished memories with her husband and two young kids. Her favorite Compt stipend category is Health & Wellness.
See how Compt is helping companies like yours
What HR leaders are saying about why they love using Compt for their stipends
“Prior to Compt, we offered a corporate gym membership with two local gyms. As we completed our annual benefits and perks analysis, we wanted to offer a broader stipend to support our global employee base. Compt helped us achieve that global reach and flexibility.”
Kelley Nekota
People Operations Specialist, Nextdoor, Inc.
It’s been a really easy and fun way to offer perks to our employees, which has added to the experience our employees are having. It’s low lift on the HR side which goes a long way with employees.
Leslie Neitzel
CHRO, Carrot
We asked ourselves ‘if we were to design a perfect employee wellness program that fit our needs, what does that look like?’ With all of our research, Compt was the obvious way to do everything we would want at once.
