Employer-sponsored health insurance,
employee stock options, and 401(k) contribution-matching programs are standard offerings, but many companies are looking beyond the basics toward more individualized support. That’s why lifestyle spending accounts (LSAs) are
gaining popularity among employers. With this flexible benefit option, companies fund accounts for their employees to use toward a variety of resources that
support their personal wellness and growth.
This guide will explain LSAs, how they can be used, and how they contribute to a positive and rewarding workplace culture.
What is an LSA?
A lifestyle spending account (LSA) is a post-tax, company-funded account that supports an employee’s overall well-being. The employer determines how much money employees receive in their LSA and how they can spend it. A lifestyle spending account’s eligible expenses may include mental health services, student loan repayment, childcare, or even classes for professional development.
LSAs differ from health savings accounts (HSAs) and flexible spending accounts (FSAs). While HSAs and FSAs are designed specifically for medical-related expenses and come with strict rules around eligible uses and contributions, LSAs offer more flexibility in how the funds can be used. Employers can customize LSAs to cover a broad range of well-being categories—such as fitness, mental health, professional development, and financial wellness—based on their workforce's needs. This flexibility has made LSAs a popular addition to modern benefits packages and an
appealing perk for job seekers.
How does a lifestyle spending account work?
LSAs are flexible by design, allowing companies to tailor the program to their budget and needs. They decide how much money each employee receives, whether unused funds roll over at the end of the calendar year, and which employees are eligible. Employers may choose to offer LSAs to full-time, salaried employees, but they may extend eligibility to contractors, part-timers, and hourly employees.
Employers also decide how beneficiaries access funds. Some issue a prepaid spending card and fund the account via annual stipends or monthly allowances. Others reimburse employees after they provide proof of eligible expenses. Companies may even facilitate access to an online shopping portal where employees can browse goods and services.
Lifestyle spending accounts have an advantage over traditional perks because the company only pays for lifestyle benefits their employees actually use, and team members are free to decide what resources best support their needs and goals. An employee might prefer help from a nutritionist over a company gym membership or be more interested in a wellness app subscription than in-person classes. With an LSA, they can choose their perks, and the employer saves money.
How can employees spend LSA funds?
LSAs can include a range of options. Here are some ways companies can structure LSAs to support employee well-being.
Fitness and nutrition
An employee’s LSA may help support their physical health in various ways, including fitness classes, private nutritionists, or personal trainers. Employers may also allow team members to use funds on technology (e.g. apps and fitness trackers), home gym equipment, or workout gear.
Mental health
Health insurance doesn’t always adequately cover mental health treatment, but LSAs may fill in the gaps to support employees’ personal wellness journeys. The funds can be spent on individual and family counseling, meditation apps, massages, and spa memberships.
Personal development
People who engage in fulfilling activities in their personal time are more likely to perform better in the workplace. LSAs can help employees explore interests and hobbies outside of work. For example, employers may allow them to spend funds on music lessons, park passes, or travel.
Career advancement
Continuing education, job training, and industry conferences can be expensive. LSA funds can go toward these costs, rewarding employees’ ambition and inspiring them to build a future with the company.
Work-from-home costs
Many companies offer remote or hybrid arrangements for their workforce. Allowing employees to spend their LSAs on desks, computers, and other home office necessities ensures they have the equipment to do their best work — wherever they are.
Family care
Many employees have children, parents, and pets who depend on them for care. LSAs can fund childcare, pet sitting, and in-home assistance. They may also provide stipends or reimbursements for cleaning and meal delivery services, easing the burden of running a home.
Financial planning
Employees may be able to spend LSA funds on investment advice, estate planning, tax preparation, student loan repayment, and home-buying costs. These financial wellness services help employees make the most of their paychecks and create a stable foundation for the future.
Pros and cons of lifestyle spending accounts
An LSA can be a strong addition to a
comprehensive benefits package, but it isn’t the right choice for every company. Businesses should consider the following benefits and drawbacks.
LSA benefits
More flexibility. The primary appeal of an LSA is its flexibility. A company can tailor LSA contributions to their budget, and recipients can freely spend the funds in a way that supports their desired lifestyle.
Easier talent acquisition and retention. Employee turnover slows growth and causes preventable setbacks to company goals. Flexible benefits like LSAs demonstrate an investment in employees’ overall health that attracts the best people and retains them long-term.
Enhanced workplace wellness. LSAs give employees a personalized health and wellness program that extends beyond medical care. Employee well-being fosters a positive company culture and prevents burnout.
Challenges of LSAs
No tax advantages. Unlike FSAs and HSAs, which provide a tax-advantaged account, LSA funds are considered taxable income for employees. This added financial hurdle might dissuade some employees from participating.
Budgetary restrictions. LSAs may pose a financial challenge for smaller companies. Employers must determine an amount that’s valuable to employees without damaging the business’s bottom line.
Organizational demands. Tracking the allocation and use of LSAs represents an
administrative burden for the human resources department, and improper reporting risks legal and tax noncompliance. Companies should assess their current team’s capacity before adding an LSA to their employee benefits
package.
How LSAs complement financial benefits
Lifestyle spending accounts support employees’ physical, mental, and emotional health, making them a valuable addition to a broader suite of benefits. However, lifestyle isn’t the only factor that affects people’s performance; financial stability is critical. Combining LSAs with targeted financial wellness benefits creates an effective support system for employees.
Money problems are stressful and distracting, with U.S. employees
losing over seven hours of productivity in an average week due to financial stress alone. While LSAs may cover services like financial coaching, tax preparation assistance, and debt management programs, offering dedicated financial wellness benefits can provide more consistent support and help employees build healthier habits over time. For example, benefits like
Earned Wage Access (EWA) and emergency savings programs can help employees combat financial stress and better manage their money.
Offer balanced benefits with EarnIn
LSAs are a modern and flexible way for employers to meet diverse employee needs and show they care about their workforce’s well-being. They work best when paired with other employee benefits that go beyond mental and physical wellness to address financial health.
Employers can support their team’s financial wellness by adding EarnIn’s suite of financial tools to their employee benefits package. With on-demand pay, employees can access their earned wages before payday to cover everyday expenses, like gas and groceries, and unexpected costs. They can get up to $150 per day — up to $750 per pay period — in minutes, starting at just $3.99 per transfer.
In addition, EarnIn offers free
Credit Monitoring to help employees track their credit score,
Balance Shield to help protect against overdrafts, and more. Best of all, these benefits come at no cost to employers, with no integration required.
Organizations that offer EarnIn as part of their benefits package can support employees in gaining greater visibility and financial flexibility.
Schedule a demo to learn how EarnIn can help support your workforce.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
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