6 Mistakes People Make With Employee Stipends

Every HR professional knows that when you decide on a new initiative, it has the opportunity to impact many of your peoples' lives in a big way. That sentiment is especially true with employee stipends because they deliver immense value to their whole lives. That's what makes them such a desirable lifestyle perk to offer. 

employee stipends allowances

At Compt, we work with companies of various sizes and stipend programs, and along the way, we've learned from our customers what they believe to be their biggest mistakes when setting up their employee stipends. 

Our goal with this piece is to help shorten the learning curve in setting up stipends by highlighting the biggest mistakes newcomers make regarding offering stipends.

Mistake #1: Putting stipend funds into employees’ paychecks

It can be tempting to drop the money into employees' paychecks because it's so easy. However, it's worth considering whether ease is actually worth what you're giving up in terms of benefits.

Below we cover the several reasons that putting the funds into employees' paychecks is a big no-no:

First, it's easy for employees to forget the funds are there. 

When was the last time you looked at your paystub?

Since they're digital, people don't look at them like they used to which puts your benefit on the mental back-burner.

The purpose of rolling out stipends is to support your people and prioritize their whole selves. When money is dropped into a paycheck, the psychological reminder of these stipends disappears.

Secondly, there could be misalignment with the stipend's goal. 

A big goal for many of our customers at Compt is to ensure that their health and wellness stipend is being spent on health & wellness-related items, same for commuter, meal, or cell-phone stipends. 

Because it's in their paychecks, there's no insight on what people are spending their funds on, leaving a lot of room for questions as to what people are spending their funds on.

You also lack visibility and tracking of if and how people are engaging with the funds. 

When you know what perks or vendors are most significant for your people at any moment, you're able to proactively plan new initiatives that will resonate most with your people. By not using software to manage, you're missing out on an ample data opportunity.

And it's also impossible to report back to your executive team what people care about most, and the beautiful ways you're supporting your people's lives.

And lastly, you might be spending more money than you need to. 

By dropping them in some or all of your peoples' paychecks, that money can be forgotten, seem like it's just a regular part of their pay, or spent in other ways it isn't wasn't intended. When you set up a stipend through a perk stipend solution, your people proactively spend their money making sure each dollar is spent wisely.

We recommend avoiding adding stipend funds to paychecks if you don't want your people to forget your stipend exists, be misaligned to its goal, overspend, or if you'd like engagement and spending data.

Mistake #2: Using a marketplace or vendor-only platform

Vendor-only platforms sound good in theory because you can "set-it and forget-it" but that isn't actually the case, and your employees are becoming more aware of the ways marketplaces are limiting their growth.

They are limiting your people.

Employees can only spend their funds on the vendors that someone else has pre-selected and opted into. The result is a limiting catalog of potential vendors to add for your employees' benefit that someone needs to continually keep updating.

And because you're selecting from pre-selected vendors, your employees miss out on significant opportunities to support their local businesses from their favorite yoga studio, local ice cream shop, or select independent bookstore.

A G2 review from a company that offers a vendor-only option highlights this concern:

"It's a little bit more difficult to add some local restaurants in our area, and we're a smaller area, so that doesn't help."

And another user said:

"Lack of flexibility for local businesses."

So if there's one thing they really want, it might not be there.

Lastly, a good user experience is essential to making this work well. With hundreds of thousands of potential vendors to buy from, what results is a platform akin to the virtual catalog malls that credit card companies use for points that never seem to have the products you really want.

Mistake 3: Offering debit-card only options

The cool factor for carrying a company's pre-funded debit card is undeniable. Millennials and Gen Z love the idea of having a card that shows status and significance to their family and friends.

However, there are several situations to consider where debit cards might hinder your peoples' perks and add more administrative work for you.

They're not for everyone.

As an elder-millennial, I understand the cool factor, but I prefer using my credit cards to achieve 2x or 3x points on my purchases. And this next point is a small one, I don't want another credit card to carry around. 

How many people appreciate a card's coolness over the functionality and benefits of using their cards for points and savings?

They complicate spending.

Here's another G2 review from a user from an employee perks software company that uses the card method.

"We do $50 per month per person, and I always end up with about $6 left, and I can never find anything to buy for those prices."

When people have a set limit on their cards, it can be challenging to find a vendor to purchase something to make the most of their last few dollars. This is frustrating for your people if the vendor you select uses the use-it or lose-it model for funds. Every month your people will see the few dollars left in their account that they can't access, making the loss of their funds more prevalent than the gain. 

Here's another G2 review from a user on this topic:

 "I wish there was an app so that when I am in a restaurant and I wonder "Is this place on my card?" I can check quickly instead of having to type my login info into the mobile site every time and then find the catalog and search for the restaurant. This process takes more than a couple minutes and usually, I don't have enough time before I order."

Not only do cards have limiting options for your people to spend, but it can also take a lot of time even to surface the vendors (in the case above, mealtime away from family).

If you'd like an in-depth review of debit-card perks, we cover them in more detail here.

Mistake #4: Using business expense software for personal expenses

Software such as Expensify and Concur are business expense platforms, and they do what they're designed to do beautifully.

However, lifestyle benefits and employee stipends are not business expenses.

A business expense is when a business pays employees to fly into office headquarters or pays for an employee to take a customer to lunch. There is software designed around streamlining this experience.

However, a personal expense is a perk or benefit expense that people receive that benefits them directly, not the company. Examples of this would be reimbursements for gym memberships, childcare subsidies, or experience stipends.

employee stipend best practices

There are other significant differences between these two types of expenses which include:

  • Business expenses are always untaxed, but personal expenses can be taxable or nontaxable. Business expense software doesn't account for this.
  • Expense software is usually more expensive per employee per month than employee stipend software and charges for each individual expense submitted.
  • The user experience for expense software does not account for stipends. They don't have the functionality to show balances, categories of spending covered, time frames for spending, or automated

Beyond the reasons above, we strongly urge against setting up employee stipends in an Expensify or Concur because employees see expense platforms as money that is a business expense and is "owed to them." The cognitive confusion created by using the same platform will detract from the generous benefit you're offering and lead to what Laszlo Bock refers to as "entitlement" issues.

Mistake #5: Using one-off point solutions that can only manage one type of stipend

In the recent few years, there've been several point-solutions that only manage one type of stipend out of a list of many potential stipend categories that both employers and employees would want: health & wellbeing, learning and development, equipment stipends, experience stipends, or travel stipends. 

These can be excellent solutions if you know you only want one stipend forever, but the problem is that it's tough to see into the future, and point-solution vendors prevent the further expansion of your stipend program.

At Compt, we've found that most companies that start with one type of stipend inevitably end up adding another stipend or additional spending categories to a comprehensive, all-encompassing one that they already offer. 

If you want to future-proof your program, keeping potential expansion in mind is essential when comparing perk approaches and vendors.

Mistake #6: Managing them manually

If you think managing your current perks program is a lot of work, you'll be shocked to see just how much more administrative work it can add when managing perk stipends manually.

The reason being, when you're managing them without software, you need a way to keep track of a lot of little details: every individual's spend, balances, receipts (for tax purposes), and you'll likely spend more time managing employees' questions on balances, reimbursement timeframes, and what qualifies than you would with software.

You'll also have to set up reminder emails or Slack notifications to promote awareness for your program benefits; otherwise, it will be another program that people won't use. 

Using stipend software to help you streamline your work will prevent you from managing questions daily around balance, what qualifies, when reimbursements will happen, taxes. It will also take the burden of sending personalized reminders to employees to keep benefits top-of-mind from your shoulders to theirs.

Compt is the #1 employee stipends platform that gives your people the freedom to choose the lifestyle perks that are best for them and their always evolving needs, even when remote. Interested in learning how Compt might benefit your company? Consult with our team or request a demo.

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