In the last year, employee stipends have become a popular go-to strategy for HR teams across the country.
With organizations from Smartsheet, HubSpot, Drift, and more deciding they’ll offer a hybrid or fully remote workforce moving forward, the need for reallocating in-office perks and benefits is higher than ever before.
In-office perks are great if your people are in-office. However, with more people choosing to work from home, catered meals, snack walls, and on-site gyms are things of the past.
So what’s a company to do? That’s easy: turn your on-site perks into inclusive lifestyle perks that support people regardless of who they are, where they live. Below are the top questions we receive when people are considering employee stipends.
1. What are employee perk stipends?
A definition for employee stipends is as follows:
Employee perk stipends are monetary funds allocated to employees for them to spend on lifestyle perks.
Stipends often align to specific lifestyle needs of the employees, company values, and culture initiatives.
They are not to be confused with traditional employee stipends, which are often given to interns or apprenticeships, as a set of money to help offset living expenses.
2. Why should I offer stipends at my organization?
There are many reasons you would want to offer a stipend at your organization, and they vary greatly depending on the size of your organization, the degrees of diversity you have and want to support, and lastly, your budget.
Below, we’ve highlighted a list of the top reasons we hear from customers as to why they begin offering stipends:
- Their team members ask for them since on-site perks are no longer existent, and if they are, they are not inclusive.
- They make consolidating existing perk vendors effortless. Depending on your perks and benefits organization's nature, you might be managing, communicating, and maintaining a lot of individual vendors, which is costly and time-consuming.
- They’re a method to support remote and global teams.
- They’re an inclusive approach to perk that supports, empowers, and celebrates diverse teams.
- They decrease HR and finance’s administrative burden by streamlining the process of managing perks down to only a few hours a month.
- If you use a tax-compliant software (like Compt!), it’s easy to ensure your perks are IRS tax-compliant.
3. How much should a stipend be?
For anyone who already knows what stipends are, the next question is "what's the average stipend amount"?
Well, it depends. There’s no requirement for how much they should be and since so many companies are introducing them based on their unique needs, the average stipend amount really varies. Fortunately, with stipends, a lot of money can go a long way. YOU get to determine the funding amounts for your stipends.
We’ve seen stipends that range from $50/month to $5,000/year, along with varying stipend programs based on location (remote vs. in-office), seniority, and more.
If you want to see real-world stipends from leading organizations, here is a list of 63 example stipends.
4. How to best manage an employee stipend?
There are several options for managing stipends, and every company's situation is different.
If you're a small organization with a few stipends, managing them manually will likely be sufficient for you.
However, if you're following a plan like Basecamp where there are multiple stipends available, it is best to use software.
A significant benefit of using stipend software is that they can manage much of the heavy administrative work for you.
5. What are the different types of employee stipends?
Organizations can set-up their stipends in two ways.
The first way is by creating a stipend focused on one goal with one spending category like wellness, family support, professional development, or travel.
The second way is that a company can setup a single stipend and include several spending categories. An example is Great Places to Work’s CARE4U $5,000 stipend that consists of the following categories for employees to spend:
- Charitable Giving
- Continuous Learning
- Family
- Financial Wellness
- Food
- Health & Wellness
- Pets
- Productivity
- Student Loan Repayment
- Tech
- Travel
6. What are the three critical elements to every single stipend program?
These are the three main elements of a successful stipend:
- stipend funds amount
- spending period
- and the spending categories in which employees can spend their funds.
In this post on how to quickly set up a stipend, we share many popular examples of stipends we see our customers setup. You can see them below and notice how every single one has the three main elements mentioned above.
1. WFH/Remote Work Stipend
Length: One-time spot bonus when employees first start, 3 months to spend
Amount: $200 - $1,000
Categories on Compt: Productivity, Tech, Cell Phone, Internet
Typical Uses: Desks, chairs, monitors, keyboards, mice, other ergonomic equipment
2. “All-Inclusive” Perks Stipend
Length: Quarterly
Amount: $100-$300
Categories on Compt: All
Typical Uses: Anything!
3. Health and Wellness Stipend
Length: Quarterly
Amount: $150-$300
Categories on Compt: Food, Health & Wellness
Typical Uses: Gym/fitness memberships, wellness app subscriptions (meditation, online classes, etc.), workout clothes, healthy foods
7. Cash vs. stipend: Why not give cash rather than build out a stipend program?
Great question! Google did an extensive research project which is published in Laszlo Bock’s book “Work Rules”. Google wanted to test the theory that employees are better retained by simply giving them a bit more cash in their paycheck vs whether or not they are better retained when they were given perks and experiences. Employees routinely say they would prefer to "just get the cash," but what Google found through their research was that employees were significantly happier and happier longer when they received other types of perks.
There are plenty of other reasons that we usually encourage people against doing this, including:
- It’s easy for people to forget the funds are there.
- People could be spending that money on anything, and it doesn’t have to be related to your stipend’s goal.
- You lack visibility and tracking of spending.
- And you might also be spending more than you need. When you let employees proactively engage with their stipends, you can be sure that every cent is spent in a meaningful way, versus letting it drop into their paycheck and being spent on who knows what.
Thus, the putting cash in employees’ paycheck idea isn’t as desirable as you’d think.
8. Are employee stipends taxable?
Yes and no. Like employee perks and how they are taxed today, stipends also depend on what your people are buying with their funds.
There are categories of spending that are non-taxable such as professional development, cell phone, commuter, internet, student loans, and office equipment stipends. When employees purchase items in these categories, they also need to provide receipts for your finance team to keep for their records in case of an audit.
Then there are categories of spending which are taxable like health & wellness, travel, family, pets, food, and more.
If you want to learn more about which fringe benefits are taxable and nontaxable, check out this article.
You can also check out IRS Publication 15-B to understand how income tax and other tax implications might apply.
9. Who pays the taxes: employees or the organization?
Either, and likely both! For taxable perks, the IRS expects to receive payroll taxes from a company as well as income taxes from the employee. There are a couple of ways to manage this for your team though.
There are generally two options when it comes to taxes:
- You can gross-up the taxes so that you cover them for your employees. Which means that if their perks are $100 of taxable income that the company is paying payroll taxes on those perks AND paying additional funds to the employee to cover the employee’s tax portion.
- Or you can have your employees cover their own income taxes in which case the company would simply pay their payroll tax portion.
Keep in mind that you or your people will only need to cover the taxes for perks that are taxable. If taxes are a big concern, it is best to focus on selecting spending categories which are nontaxable.
If you’re currently or are planning to manage your people stipends manually, you’ll want to make sure that you understand the tax implications and are properly tracking each purchase. To do this, it’s best to set up a process to make sure you’re monitoring spending categories, employee balances, receipts, and reimbursements that have been approved, rejected, and paid back.
10. How are taxes tracked and paid?
We covered the manual process in the last section, but it's possible that you're going the vendor route. Different vendors handle stipends taxes in their own way - all of which could be correct for IRS purposes, but could have very different impacts on your team.
- Only taxed at the end of the year. This is a common scenario for vendors with prefunded cards or marketplaces. They may track all of the purchases your team makes during the course of the year, and then at year end provide you with one big total for which you must pay taxes and tax your team. Imagine, though, being an employee who has received a full year of benefits and then finding out at Christmas that they now will have a massive tax deduction from their paycheck? That is a pretty scrooge like approach.
- Everything is taxed all the time. Some vendors will submit to you taxable income reporting for all team perks - regardless of whether or not the item is taxable. This means that both you and your team are overpaying taxes to the IRS. The net impact to the team is that not only are they paying unnecessary taxes, but also that they receive a surprisingly smaller paycheck as taxes are witheld for a benefit they received at another time.
- Nothing is taxed - the tracking is on you. Some vendors push all tax compliance to you. This means that you must manually track what your team has used and in what amount, then determine which items are taxable and record those taxes in payroll for both the company and the employee. The net impact to the employee here is that they get a surprisingly smaller paycheck at a random time as the benefit they received is not matched to the moment it is taxed.
- Matching the reimbursement to the moment of taxation. This is the best possible experience for an employee and a big selling point for perk stipends that include reimbursement. This scenario matches the moment the employee is reimbursed to the moment taxes are withheld - which means their paycheck is always bigger. No surprise small paychecks here!
11. Why is it better to select software to manage my stipends?
There are many reasons!
Some of the main reasons people prefer to use stipend software to manage their stipends are as follows:
- It makes setting up and managing stipends easy. With Compt, it's just a few clicks, and you have your stipend program setup. A few more clicks, and your people are invited and ready to start spending their funds.
- They create a great employee experience for your people. Everything your people need about their stipends, like their balance information, spending categories, and reimbursement status, are at their fingertips.
- They streamline employee communications. Gone are the days of writing monthly emails notifying people of their benefits available. At Compt, we send regular emails to your people, helping them to keep your generous stipend amounts top of mind, making engagement the best in the market (our customers experienced a 90% employee engagement rate in 2020!).
- They make IRS-compliance simple. Not all stipend solutions optimize for taxes. Some overtax and others undertax (relying on you or your people to figure it out), but with Compt, we make sure everything is done accurately every time.
- And lastly, if you're a global team, they make currency conversions simple. At Compt, we're already operating in 15 different countries and can help you expand your stipend program to your global employee base with just a few clicks.
There you have it, the top 11 questions on stipends. If you’re looking for more information specific to Compt, we have a more comprehensive software FAQ that should be able to help. If not, feel free to contact us!
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.