Why Stipends Are Better Than Extra Money on a Paycheck 

If you’re thinking of offering employees some extra cash for things like a cell phone allowance or gym membership, you’ve probably considered just adding that money onto their paycheck. 

While adding a few extra dollars to an employee's paycheck may seem like a straightforward way to enhance their total compensation, it’s typically not as effective as offering lifestyle benefits in the form of stipends. (Note: This is assuming that you are paying employees their market rate. If you are paying below market rate, then tacking on more cash to employees’ paychecks to bridge the gap is a good move.)

Lifestyle benefits are a simple yet powerful way to make employees feel valued–and the good news is: you don’t need an enormous budget to drive an impact. 

In this article, we'll explore the compelling reasons why providing lifestyle benefits through stipends represents a more strategic approach to employee benefits.

Cons of Adding More Money to a Paycheck

Simply adding money to a paycheck offers a level of administrative convenience for HR and finance since the amount is predictable and the process is automated. 

However, this approach falls short in several ways:

  • Tax Inefficiencies: Many benefits, like commuter allowances or cell phone reimbursements, can be offered tax-free through a Lifestyle Spending Account (LSA), saving both the company and employees money. Paycheck additions are subject to payroll taxes, resulting in overpayment for all parties involved.
  • Reduced Recognition: Paycheck additions often go unnoticed. With traditional paper paystubs becoming obsolete, employees may not even remember receiving the offered benefit, hindering its perceived value and intended purpose. This is the equivalent of lighting your budget on fire!
  • Missed Opportunities to Promote Specific Values: A well-rounded benefits program can help attract talent and encourage retention–something that’s much harder to do with just a bit of extra cash. 

Benefits of Offering Lifestyle Stipends

Employee stipend programs address the shortcomings mentioned above and unlock additional advantages:

  • Promotion of Company Values and Desired Outcomes: Leveraging lifestyle benefits empowers you to tailor your focus to specific categories that align with your company values.

For example, many of our customers offer a health and wellness stipend which employees can use to spend on things like gym memberships, massages, therapy, and more–because a healthy workforce is a productive workforce

With Compt, you can design your own custom program by choosing any combination of our 27 categories: 

  • Higher Level of Personalization: Unlike vendor-specific or marketplace solutions, which offer limited options, stipends can be spent with a vendor of the individual’s choice. This flexibility fosters a deeper sense of employee satisfaction and engagement, as it acknowledges the diverse needs of the workforce. 

Let’s say you want to offer a health and wellness benefit. While some employees may prefer a particular local gym, others may not prioritize gym attendance at all, opting instead to invest in running shoes or other fitness equipment. By offering a stipend, you empower each employee to make choices that best suit their individual preferences and wellness goals, with minimal administrative burden on your end. This approach not only accommodates diverse lifestyles within your team but also promotes a sense of autonomy and ownership over personal wellbeing initiatives.

  • Increased Perceived Value: As outlined in Laszlo Bock's "Work Rules," people place greater value on benefits they can actively use and perceive as relevant to their lives. Receiving contributions towards a specific service, like babysitting or a food delivery subscription, holds more weight than a generic cash addition. In our 2024 Lifestyle Benefits Benchmarking Report, we found that 84% of Compt users surveyed believe that stipends offered through Compt are a valuable benefit that makes them feel appreciated.

Think about it–would you tell your friends that your employer added an extra $50 to your paycheck? Probably not. But saying that they cover a portion of your family’s groceries is a benefit worth mentioning and reinforces the idea that your company cares about your wellbeing outside of work. 

Times have changed and employee expectations around benefits and compensation have changed, too. Your health insurance and 401k are simply not enough to ensure your talent is feeling fully supported, and lifestyle benefits administered through stipends are the simplest, most effective way to address this gap. 

By utilizing an employee stipend platform, companies can offer valuable, tax-efficient benefits and foster stronger employee engagement, ultimately leading to a happier and more loyal workforce.

Thinking about offering your team lifestyle benefits? Request a demo to learn how Compt can help you create a stipend program that boosts engagement and retention. 

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