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Stipends and reimbursement are two different methods employers use to support employees with costs related to their work and lifestyle. Whether paying for a remote workers’ broadband package or supporting your commuting employees with gas and parking costs, these benefits are an extra way to compensate your workforce for their hard work and dedication.
How you fund these benefits is a top consideration because stipends and reimbursements tackle the payment process from different angles. One pays upfront before an employee goes out of pocket, and the other only delivers once the employee has already paid for the expense and wants their money back.
This guide explores stipends vs. reimbursements in more detail. You’ll learn some examples of the benefits of each and the main differences between these benefits distribution models.
A stipend is a fixed sum of money employers can pay their employees to support them with various financial costs related to work or their personal lives. Employees may receive their stipend allowance directly into their wages as part of the payroll process or deposited into a benefits administration platform like Benepass. Stipends are often paid on a regular basis, for example, an annual, quarterly, or monthly stipend.
Stipends allow employers to cover specific expenses their employees may incur. They’re a great way to offer support in a specific area, such as:
For further inspiration, the Benepass guide to employee stipends provides a list of ideas, tips, and best practices.
Stipends are an attractive way to distribute benefits, with the following gains for both employers and employees:
Stipends are designed with convenience in mind. Making a fixed, routine payment into an employee’s account every month reduces significant admin for your in-house benefits administration teams. Instead of the burden of expense management, which involves approving receipts before making the payment, stipends allow for ease of use and cost efficiency.
With the rise of remote working, employers must find a different way to support their distributed employees who don’t have access to the onsite corporate gym or enjoy catered office lunches. Stipends ensure you treat your employees equitably by providing funds they can customize to their individual needs.
Stipends are a huge selling point for job candidates and existing employees. Employers who publish their stipend details in job ads or on their company career pages will strengthen their employer brand. They’re putting their money where their mouth is in terms of employee support.
Stipends embrace individuality by allowing your employees to spend their allowance on benefits that are meaningful to them. While stipends follow a certain theme, they also include plenty of space for flexibility. For example, workers might put their food allowance toward a monthly family meal in their local restaurant or their grocery bill from the local health food store.
Reimbursement is another employee benefits model that allows workers to claim back their personal or business expenses. Employees incur an expense, pay for it out of pocket, and then submit a claim to their employer for the money spent. The company reimburses them by recompensing whatever they have spent.
But while employees receive their money back in the end (so long as the expense is approved), the reimbursement process can be lengthy and labor-intensive for your benefits teams.
Employers may offer reimbursements to cover any type of expenses an employee incurs as part of their job responsibilities or personal life. Some examples include:
Reimbursements can also provide advantages for employees:
Reimbursements provide a clear record of spending since employees must go through the expense claim process to get their money back. This transparency makes it easier for employers to manage costs and ensure the allowance is used as intended.
Depending on the type of reimbursement, some are not subject to income or payroll taxes when structured under an accountable plan. This allows both employers and employees to avoid unnecessary tax burdens.
Employees are more likely to make mindful purchases when they know their receipts will be analyzed by an in-house expenses team. This makes it easier for employers to keep their expenses in line with the company’s overarching benefits strategy.
Like stipends, reimbursement programs ensure all employees, whether remote or in-office, are reimbursed for necessary work-related expenses, promoting fairness and inclusion across the workforce.
Employee stipends and reimbursements both allow employers to bolster their compensation packages by offering fringe benefits that support their workforce in a range of meaningful ways. But there are clear differences between stipends and reimbursements, as follows:
Stipends are designed to cover predictable expenses, such as fitness or commuting costs. Employees aren’t usually expected to account for how they spend their stipend.
Reimbursements, on the other hand, can cover a wider range of business-related expenses and are often used for one-off costs or unexpected items. Receipts are a significant part of the reimbursement process, as employers need to see proof of purchase before paying back the employee.
Employees receive their stipends upfront in their regular wages, so the money is there, ready and waiting before they need to pay their regular cell phone or gym membership payment. Essentially, employees never go out of pocket.
Reimbursements are a lengthier option for employees. The exact time they’ll wait to receive their reimbursement depends on multiple factors, including:
During this time, which could be several days or weeks, the employee will be out of pocket and may even need to pay interest on any credit they’ve used to make the initial purchase.
Stipends are a fixed sum of money employees can spend flexibly according to their needs. For example, our benefits benchmarking report reveals that 45% of Benepass customers offer an average wellness stipend of $151 per month.
Reimbursements will process expense claims of varying amounts, usually up to a maximum limit. For example, an employer may allow their employees to claim back home office setup expenses of up to $500. Employees will submit their receipts and invoices for office supplies, lighting, furniture, and technical equipment. If they spend $491, they’ll be reimbursed for exactly $491 and won’t receive the $9 in change. If they spend $525, they’ll only receive $500 back as an expense and must pay the remaining $25 out of their own pocket.
Reimbursements and stipends have different tax implications for employers and employees. Understanding the tax nuances between stipends and reimbursements can help employers structure their employee benefits programs efficiently, minimizing unnecessary tax costs for both parties.
Stipends are generally considered taxable income unless they fall under specific exemptions outlined by the Internal Revenue Service (IRS) in Publication 15-B. According to the IRS, U.S. citizens or resident aliens will need to complete either a W-9 or W-2 form to include these stipend amounts. For non-resident aliens, a W-8BEN form is required.
Reimbursements may not be subject to taxes if they meet the criteria of an accountable plan. Under an accountable plan, reimbursements are exempt from income taxes, Social Security, and Medicare taxes. However, if the expense reimbursement is under a non-accountable plan—where receipts or proof of expense are not required—it may be taxable, and both the employee and employer could face additional tax burdens.
Choosing between a reimbursement and stipend program boils down to which makes the most sense to your business and your employees. There’s no right or wrong answer, but the following scenarios may help you decide:
While traditional stipends and reimbursements are different ways to pay employees’ benefits, they’re not always mutually exclusive. A stipend reimbursement is a hybrid approach that combines the flexibility of stipends with the accountability of reimbursements. Using a card-first approach like Benepass with built-in spending controls, employees can make eligible purchases using their stipend funds so they never go out of pocket. Employers can then require employees to submit receipts after spending to ensure compliance with their programs if they desire. This approach offers a streamlined and transparent process while still empowering employees to manage their expenses efficiently.
Benepass is a people-focused benefits administration platform that uses the Benepass Visa card to empower employees to choose meaningful benefits. Here’s how it works:
Ready to overhaul your resource-intensive reimbursement operations? Book a free Benepass demo today or contact sales@getbenepass.com to connect with a benefits specialist.
