Are you looking for new ways to attract and retain talent? Lifestyle spending accounts (LSAs) are growing in popularity as a great way to show that you are an employer who cares.
Lifestyle spending accounts, also known as life accounts, lifestyle accounts or life planning accounts, are a fringe benefit that is helping employers stand out as we face the ‘Great Resignation’. Recent low employment rates and the cost of living crisis have resulted in a surge in interest in lifestyle benefits – with a Mercer Insights survey revealing 70% of employers are considering adding a lifestyle spending account to their benefits and perks package.
Since the pandemic, employees are increasingly seeking more investment in health and wellbeing. LSAs are quickly becoming a great option for your business to show it is investing in the welfare of its staff.
Read on to learn more about this topic! Click on the sections below to jump right to your specific question.
- What is a Lifestyle Spending Account?
- What is the difference between a Lifestyle Spending Account (LSA) and a Health Savings Account (HSA)?
- What types of expenses are eligible for a Lifestyle Spending Account?
- Are Lifestyle Spending Accounts taxable?
- Advantages of Lifestyle Spending Accounts?
- Disadvantages of Lifestyle Spending Accounts?
- Closing Thoughts
What is a Lifestyle Spending Account?
A lifestyle spending account has the aim of encouraging healthy behaviours in employees. LSAs allow employers the opportunity to fund health and wellness costs that traditional group health plans won’t offer, such as counselling, corporate gym memberships (or even employee gym memberships), fitness reimbursements and fitness classes. All employees are eligible to participate in a lifestyle spending account, regardless of their full or part-time status.
Employers have the freedom to choose what expenses are covered and how much each employee can spend. Employees can use their accounts to make specific types of purchases which will be reimbursed.
Modern healthcare tends to focus on treating the illness rather than prevention, but utilising a lifestyle spending account encourages people to focus on wellness and building healthy habits rather than simply focusing on covering medical expenses.
What is the difference between a Lifestyle Spending Account (LSA) and a Health Savings Account (HSA)?
Health savings accounts (HSAs) are already offered by many employers to cover any medical or health-related costs. These accounts have government-imposed spending restrictions and only qualified medical expenses are covered.
However, LSAs allow much more flexibility as employees can spend on physical, financial and emotional wellness. They cover more preventative measures including nutrition coaching and fitness classes – whereas a HSA will cover medical treatment.
Unlike HSAs, lifestyle spending accounts do not have any tax advantages. As the funds are considered taxable income there are fewer restrictions on how the funds can be used and employers can create their own rules and restrictions as they see fit. HSAs, on the other hand, set aside pre-tax money so the use of these accounts are much more regulated.
Many employers do not choose between these accounts. A lifestyle spending account is often seen as a complement to a HSA as they work to promote health and wellness and prevent injury.
What types of expenses are eligible for a Lifestyle Spending Account?
70% of staff members said they would be at least somewhat likely to leave their current organisation and take a job with one that is known for investing in employee development and learning. Lifestyle spending accounts are a great way to demonstrate to prospective candidates that you are an organisation investing in your employees.
LSAs allow employers to invest in expenses that will improve employee well-being, but what this includes will vary between companies. The idea is to encourage healthy habits and provide assistance across physical, emotional and financial well-being. Some of these might include:
- Exercise equipment and classes
- Gym, health club and spa memberships
- Entry fees to participate in sports events
- Nutritional supplements.
- Wellness reimbursement
- Financial advisors and seminars
- Home purchase expenses
- Work from home stipends
- Cell phone reimbursement policy
- Travel stipend for employees
- Family support – childcare, surrogacy, fertility treatments and adoption.
- Student debt repayment.
- Identity theft services
- Pet insurance premiums
- Counselling services
- Meditation apps
- Park passes
- Personal development and training.
- Camping supplies
As employers have control over their lifestyle spending accounts, the budgets involved and what they choose to cover will vary hugely. Contributions generally range from $500 to $2000 covering a huge range of health and well-being activities. Higher-end lifestyle spending accounts will cover larger expenses such as surrogacy and adoption.
Are Lifestyle Spending Accounts taxable?
Lifestyle spending accounts are a taxable benefit. It is considered an additional income so employees will be taxed on any money spent from their lifestyle spending account. Employers will usually decide how often tax is taken from pay, which could be at the end of each quarter.
One benefit to not being tax-advantaged is that there are fewer legal implications involved in LSAs. This means there is much more freedom in deciding how a LSA should be used.
Advantages of Lifestyle Spending Accounts?
Lifestyle spending accounts are a great way to go above and beyond traditional benefit accounts. It gives employees autonomy on what they spend the money on and also ensures employer dollars are being used in a way that is valuable and meaningful to the individuals. Some employers even allow their teams to use LSAs for day care benefits for employees.
LSAs allow employees a choice, meaning they have multiple options on where they spend their funds. They can split the cost across multiple categories including physical, emotional and financial wellbeing.
HSAs will roll over any contribution so that anything unused will still belong to the employee. With LSAs, this doesn’t have to be the case. Employees will not retain or rollover any unused balance, which can make it a much more affordable choice for employers.
Lifestyle spending accounts grant the employer a lot of control. They control how frequently funds are distributed into the lifestyle spending account, how reimbursements from the fund are handled, and they can control what types of purchases to allow with the funds, whether this is open or restricted.
Lifestyle spending accounts are easy to set up. Organisations have lots of options for what the accounts will reimburse and how much each employee will get per year, providing an option that will be much more useful to all employees.
LSAs enhance wellbeing and prevent illnesses and diseases. This will benefit your business long-term – you will have a much healthier workforce and will reduce the number of sick days.
Your employee’s physical and mental health can predict how much you will be paying for their insurance premiums, and sick days further down the road. Promoting employee wellness today means you are also investing in your company’s long-term future.
Studies have shown that happy, active, and overall satisfied employees make for productive employees in the workplace. While physical exercise is most often associated with weight loss or muscle building, studies also show that employees who engage in regular physical exercise are more focused and productive during the day.
Attract and Retain Talent
In the current cost of living crisis, insurance is seen increasingly as a necessity for job seekers. Without a great insurance package, it’s unlikely you will stand out amongst others when attracting talent. On that note, some insurance companies offer their own wellness reimbursement program as well, such as the Cigna gym reimbursement program, humana wellness program, or the Go365 program by Humana.
Traditional benefits, or company perks such as a HSA are no longer enough. If you include a life savings account within your benefits package, you demonstrate that your business cares about its employees and is committed to workplace culture. When implemented carefully and thoughtfully they can be a great way to differentiate the company.
Demonstrate Company Culture
Employee benefits show clearly that your company is committed to its values. Instead of just talking about values – providing employees with a lifestyle spending account shows you have a company culture that genuinely cares about the well-being of its staff.
Disadvantages of Lifestyle Spending Accounts?
One of the disadvantages of a lifestyle spending account is that employees will add to their taxable income when they spend funds from a lifestyle spending account. As they are exclusively employer-funded they also add to the cost of your budget.
Having the responsibility for setting limitations and budgets for lifestyle spending accounts can also be a disadvantage – it can be hard to ensure you stay generous to your employees while remaining within your budget.
In a competitive job market, lifestyle spending accounts are becoming increasingly sought-after as a benefit that shows the company genuinely cares about its employees.
If you are looking to provide more than traditional employee benefits and spend money on staff wellbeing in a meaningful way, lifestyle spending accounts are a great option. Employees can decide what they spend the money on, which increases their engagement with their job and loyalty to their employer. The flexibility of the budget appeals to many people who prefer to invest in their health in their own way – whether it be learning a new skill, joining a gym or investing in vitamins and supplements.
If you would like to learn more about fringe benefits, check out this guide on the different types of fringe benefits you can offer. If you are interested in exploring ways to set up a lifestyle spending account benefit offering at your company, we would love to help you! Feel free to schedule some time with our experienced benefits experts at your convenience.