More employers are coming up with creative ways to attract and retain talent. Many are now implementing lifestyle spending accounts, also known as lifestyle savings accounts.
Adding lifestyle spending accounts to their employee benefits packages helps employers stand out. These funds are an excellent solution for companies that wish to support their employees’ physical, financial, and emotional well-being.
This employer-funded account is flexible for employers and employees and relatively straightforward to establish and manage. Learn how it works and what to consider before adding one to your benefits plan.
What is a Lifestyle Spending Account?
The employer funds the lifestyle spending account. However, this money is taxable—unlike nontaxable HSAs and FSAs. Employees must report the funds they have spent as income at tax time. This means the funds are not subject to Internal Revenue Code nondiscrimination requirements.
For example, if the company contributes $1,000 to the account and an employee spends $500 on home gym equipment, the employee only has to report $500 as income.
As the employer, you decide how employees can spend their lifestyle spending account funds. You would work with a vendor and manage the permitted products and services through their platform. The funds cover expenses not eligible under traditional health insurance, such as:
- Gym memberships
- Yoga/fitness classes
- Athletic wear
- Nutrition consulting
- Health supplements
- Life coaching
- Exercise/athletic equipment (e.g., treadmill or golf clubs)
Employees simply submit receipts for reimbursement. And you only pay for what employees spend!
Why Add an LSA to Your Employee Benefits Plan?
A lifestyle spending account is an easy-to-manage, highly flexible way to enhance your benefits package. It supports recruiting efforts and boosts employee retention by allowing you to offer higher compensation without a permanent wage or salary increase.
Additionally, many businesses offering employee wellness benefits find that they go unused. Instead of throwing money at multiple specific programs that could go to waste, implement a lifestyle spending account. Employees can use the funds on whatever services or products best suit their wellness needs and lifestyles.
A lifestyle spending account can also be a practical, inclusive benefit. Female employees, certain racial/ethnic groups, LGBTQ+ people, or those with exceptional life needs (e.g., surrogacy, adoption, or emergency relief) can use the funds for many of their needs not covered by a group health plan.
How to Set Up a Lifestyle Spending Account
The beauty of a lifestyle spending account is that as the employer, you can decide exactly how it works—and it’s easy to do! Follow these steps:
Determine a Budget
First, set a budget by asking:
- How much will you contribute to each employee’s account?
- When can employees spend lifestyle spending account funds?
- How will you manage unused funds at the end of the year or when an employee departs?
Amounts vary widely. If you contribute $500, you might give the total amount on January 1st and allow employees to spend it immediately.
On the other hand, you could give a larger amount and spread it out into monthly or quarterly contributions. You could require employees who want to make a big purchase to wait until they have sufficient funds in their account. Or, they could submit a receipt for reimbursement at any time but won’t receive it until the funds are available.
As for remaining funds, you can either allow employees to roll them over into the following year or reclaim them.
Determine Your LSA Benefit Design
Which expenses will be covered by your lifestyle spending account? Decide whether you want to be specific or keep it broad, considering your employee population and their preferences.
For example, some employers state eligible expenses must be related to physical health and wellness. Others may allow staff to use their funds on anything well-being-related—meaning employees could even use it for spa treatments!
Some employers even choose to establish separate lifestyle spending accounts for specific purposes. For example, an organization may have:
- One general account that covers various expenses (this can even include financial planning, tuition/student loan repayment, family care, and pet care—just to name a few!)
- Account(s) for specific expenses (e.g., larger life changes/expenses, home office equipment, etc.)
It’s all customizable, meaning you can select the covered categories, qualified employees, fund amounts, contribution schedules, reimbursement methods, and spending timeframe. Your vendor and HR team can also help you choose appropriate expenses.
Clearly Explain the Benefit
Since lifestyle spending accounts are still somewhat new, many of your employees will be unfamiliar with them. Start by holding a company-wide training session. Be sure to communicate the program so your team understands how it works and how they can take advantage of their funds.
And since most lifestyle spending account vendors provide intuitive systems, employees should be able to easily find details and submit reimbursement claims.
Introduce a Comprehensive Wellness Benefit
Lifestyle spending accounts are easy to manage and can be tailored to fit any company’s budget and needs. Not to mention, you won’t be wasting money and energy on employee wellness benefits that don’t appeal to everyone! You can design an account that caters to a wide range of wellness preferences and lifestyles.
Are you ready to explore your lifestyle spending account options? BlueLion’s HR professionals will be happy to advise you on fund design and vendors. Contact us at email@example.com or 603-818-4131 to learn more!
The information on this website, including its newsletters, is not, nor is it intended to be legal advice. You should contact an attorney or HR specialist for advice on your individual situation.