Health vs. wellness stipends

If you want to attract and retain employees, you need to offer a compensation package that appeals to the unique needs of your workers. One way to provide flexible and affordable employee benefits is through employee stipends, also known as fringe benefits or perks.

Stipends are a fixed sum of money offered to employees by their employer to help cover various expenses.

While you can offer a stipend for any expense, taxable health and wellness stipends are two of the most popular options available. Despite both having to do with supporting your employees’ well-being, you can use them to cover very different expenses.

This article will explore the differences between health and wellness stipends and what expenses are reimbursable for each.

What is a health stipend?

A health stipend is a sum of money offered to employees for their eligible medical expenses and out-of-pocket healthcare costs.

This flexibility allows your employees to purchase their own individual health insurance, use it for purely out-of-pocket health expenses, or a combination of the two. A health stipend can also be offered in addition to other health benefits, allowing your employees to still participate in your group health insurance plan.

What are the benefits of a health stipend?

Because health stipends don’t have to follow as many regulations as health insurance or health reimbursement arrangements (HRAs), they give employees more freedom to use their allowances on the medical costs they need.

And, since stipends are taxable, they can also be given to employees who receive premium tax credits without having to waive their credits. You can also offer a stipend to international workers and 1099 contractors. This makes stipends an extremely flexible benefits option for businesses.

If your business already offers a group health insurance policy, an integrated or group coverage HRA (GCHRA) can help employees cover their out-of-pocket expenses. But what if you want to help your employees pay their vision or dental insurance premiums? After all, a GCHRA doesn't allow employers to reimburse employees for insurance premiums.

As long as you don’t require employees to use their stipend on premiums or ask for proof of vision or dental coverage, you can offer a stipend for vision or dental expenses.

Health stipends are also a great way to show your employees that you care about their health and general well-being. When you support employee health, your workers will be more likely to stick around instead of searching for a new job.

What are the downsides to health stipends?

There are some drawbacks to offering health stipends compared to other healthcare benefits.

Unlike HRAs, which allow you to reimburse your employees for their qualifying medical expenses tax-free, stipends are counted as taxable income for the employer and the employee.

Health stipends also don’t replace group health insurance or HRAs for employers with at least 50 full-time equivalent employees (FTEs).

Additionally, you legally can’t ask employees for proof of insurance or receipts for employees’ medical expenses with a stipend. You also can’t require employees to purchase health insurance with the funds from your health stipend. Otherwise, your stipend would be considered a “group plan,” subjecting it to far more IRS regulations and Employee Retirement Income Security Act (ERISA) compliance.

You also can't require receipts for items listed in IRS Publication 502.

What can employees buy with a health stipend?

With fewer regulations than HRAs, employees are free to buy a wide range of items and services with a health stipend.

It’s important to note that taxable health stipends, much like lifestyle spending accounts (LSAs), can’t be used to directly pay employees for the qualifying medical expenses listed in IRS Publication 502. You can’t limit your stipend to only these expenses or require employees to submit receipts or proof of insurance.

Examples of what can be considered reimbursable under a health stipend include the following:

• Vision insurance premiums
• Dental insurance premiums
• Prescriptions
• Medical services, including office visits and co-pays
• Chiropractic care
• Out-of-pocket medical expenses
• Mental health costs
• Any other expenses

Because expense approval is up to the employer, you can define what’s reimbursable and what isn’t.

Now that we’ve covered health stipends, let’s discuss how wellness stipends work.

What is a wellness stipend?

Like a health stipend, a wellness stipend is a taxable benefit paid to employees to help them cover their wellness expenses. They are sometimes known as wellness spending accounts, wellness LSAs, or wellness perks.

These flexible benefits are primarily used for physical and mental wellness needs other than medical expenses (which are covered by health stipends). However, employees can use them for some of the same expenses.

Employers generally provide wellness stipends to cover a range of activities and programs that promote healthy living.

Why offer a wellness stipend to employees?

Because wellness stipends generally cover other expenses than a health stipend, HRA, or health insurance policy, it’s a great additional perk to offer to employees.

It can encourage employees to focus on their well-being while helping your organization attract new talent who are looking for a job with diverse benefits offerings.

Offering a wellness stipend is also a great way to improve productivity. After all, an unhealthy workforce is more likely to be absent or unable to focus on the job.

When the U.S. Office of Personnel Management¹ began integrating wellness benefits into federal agencies, they found wellness benefits lowered employees’ healthcare costs and absenteeism while increasing their productivity.

Offering wellness perks can also help you retain your current employees. According to MetLife’s 2022 U.S. Employee Benefit Trends Study², employees who are satisfied with their employer’s wellness programs are 1.6 times more likely to stay at their current jobs.

Wellness programs are more critical than ever for keeping your employees engaged while helping to improve their physical and mental health. A highly engaged workforce that feels supported and cared for can create a positive company culture.

Benefits of a wellness stipend over traditional wellness programs

There are many different types of wellness programs and perks available. However, offering a wellness allowance through a stipend is the best way to provide flexibility and cost control compared to traditional wellness programs.

Instead of offering various wellness programs from different vendors, such as fitness classes, corporate gym memberships, financial wellness seminars, and fitness trackers, you can provide a monthly wellness stipend. You can empower your employees to use their monthly stipend on the expenses that matter most to them. This allows you to save money and administration time on managing these different programs.

Because your organization isn’t dealing with various vendors, you can easily manage your stipend with benefits administration software in minutes each month.

What can employees buy with a wellness stipend?

Now, let's review what expenses your employees can buy under a wellness stipend.

Your employees can get a variety of wellness items and services, including:

• Mobile apps
  • Fitness and motivation programs
  • Mental health apps
  • Meditation programs
  • Sleep tracking
• Gym/fitness memberships
• Exercise classes
• Wearable fitness trackers
• Home exercise equipment
• Any other items or services they choose, such as personal trainers or wellness products

Gym memberships have been a popular perk for years. But, this often meant managing an office gym or partnering with one near the organization. A wellness stipend gives your employees the freedom to choose whichever gym or class works best for them.

Or, your employees could decide to work out at home instead. Your wellness stipend can reimburse them for their home gym expenses, such as weight lifting equipment or a treadmill.

Wellness stipends don't just cover physical wellness, either. Your employees can use their wellness stipend on meditation apps or nutrition trackers to promote overall health.

With a wellness stipend, you're allowing your employees to live a healthier lifestyle, which will only come back to help them succeed at work.

Conclusion

Knowing the differences between health and wellness stipends can help you make the right choice for your business and your employees. However, many employees don't see stipends as a real benefit.

Do you want to offer your employees a tax-free health benefit without the hassle of going about it yourself? Thankfully, with PeopleKeep's personalized health benefits solutions, you can. Our HRA administration platform allows you to provide health benefits to your employees in minutes.

Schedule a call with a personalized benefits advisor today to start offering HRAs that support your employees' unique needs

This blog article was originally published on March 2, 2022. It was last updated on February 16, 2023.

1. https://www.opm.gov/policy-data-oversight/worklife/health-wellness/

2. https://www.metlife.com/employee-benefit-trends/2022-employee-benefit-trends/