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January 26, 2022

Lifestyle Spending Accounts: A Comprehensive Guide for Enhanced Employee Wellness

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The past few years have been characterized by employers desperately searching for sustainable, realistic ways to retain and attract employees. A new benefit is gaining traction in the HR industry, and it’s one that’s not difficult to implement or administer:

Lifestyle Spending Accounts (LSAs).

LSAs are accounts that give employees some extra cash that they can spend toward their personal, everyday wellness needs (needs that aren’t covered by traditional health plans). Unlike HSAs or FSA, a Lifestyle Spending Account allows employees to spend the extra money on a wide range of wellness expenses, determined by employer guidelines.

Read on to learn everything you need to know about LSAs; what they are, how they work, and what the benefits are.

Key Takeaways

  • LSAs are employer-sponsored accounts that employees can use to cover health and wellness costs that aren’t covered by traditional health plans.
  • Employers tailor the program to include possible expenses—employees choose how to use their money within the program
  • LSAs are easy to implement, easy to administer, and easy to use for employees. 
  • LSAs boost traditional benefit plans to attract new employees and retain existing ones.

What Are Lifestyle Spending Accounts?

LSAs are employer-funded accounts that allow organizations to help their employees cover qualified health or wellness expenses. Unlike a traditional healthcare plan, however, LSAs don’t have many rules or restrictions regarding spending—in fact, employers can set what is deemed an eligible expense.

Usually, this means anything related to wellness: physical wellness expenses, mental wellness expenses, and financial wellness expenses are some good examples. Employers decide how much to give each employees’ account and which expenses are eligible, and employees decide how to spend that money in a way that means the most to them.

What Are Eligible Expenses for an LSA?

LSAs are so popular because the eligible expenses aren’t defined by the IRS or government—eligible spending is up to each company, which means it can be either narrow or broad, depending. Common spending opportunities through LSAs include:

  • Gym memberships
  • Fitness equipment/classes
  • Groceries
  • Daycare services
  • Life coaching
  • Therapy sessions
  • Financial education courses
  • Continuing education
  • Professional development
  • Home office equipment
  • Pet care

Eligible expenses are typically wellness-centric, and best practice says to be as flexible in your restrictions as possible because every employee is different—everyone will want to increase their wellness in different ways.

The goal of an LSA is to empower employees to be healthier and happier by giving them extra money to spend on the wellness items they may not be able to afford otherwise.

What’s the Typical Setup for an LSA?

Because it’s up to employers to design what works best for them, there isn’t really a typical setup. Each LSA program has its own:

  • Eligible population
  • Dollar amounts/limits
  • Funding frequency
  • Spending time frame

As with any benefit, you should be as accepting and open in your LSA design as possible. Try to allow employees to use the funds in any way that will be fulfilling to them—that way, the benefits will be much more far-reaching and exciting.

How Do Taxes Work for an LSA?

With an official LSA account, employees typically don’t pay taxes on the funds until they use them—once they use the money in their account, it’s considered extra taxable income. LSAs that fund specific expenses can even be tax advantaged to the employer and employee as a business expense in certain situations.

However, because LSAs are so customizable and variable, we recommend talking with a tax professional before implementation to get all of the tax info straight.

What Are the Benefits of a Lifestyle Spending Account?

When you enhance your benefit offerings with an LSA, some key benefits will come along with it. These benefits include:

  • Flexible spending for employee-centric wellness. Some employees need childcare, some want to go to the gym more often, and others want to eat healthier. An LSA program allows each employee to spend their extra cash on what is most meaningful for them. This customizable benefit helps employees feel valued and recognized, which can improve turnover and happiness.
  • Enhanced benefits without breaking the bank. Employers can offer better, more far-reaching benefits without increasing everyone’s base pay or spending an arm and a leg on bonuses. Instead, they can fund LSA accounts in manageable, affordable ways while still making a big difference in employees’ lives.
  • Further diversity, equity, inclusion, and belonging initiatives. LSAs are a great opportunity to pursue DEIB objectives and close the benefits gap between different groups of employees.
  • Only pay for reimbursed funds. While you may budget for $500 for each employee, you only have to cover the money that employees spend. Obviously, the goal is for every employee to take advantage of this benefit—but if some don’t, you don’t waste any money.
  • Show employees that you care. In today’s world, employees need to know that their employers care about them on an individual level. Wellness is very important to over 60% of employees, and when you offer personalized wellness benefits, such as an LSA, you show that you’re willing to invest in your employee happiness.

What Are Considerations for Implementing an LSA?

You should consider the following best practices when you decide to implement an LSA:

  • Develop program goals and set a realistic budget
  • Clearly define eligible expenses and keep funding, spending, and reimbursement (if applicable) processes simple
  • Communicate clearly and frequently to employees about this new benefit
  • Run reports to optimize your program performance

It’s as simple as that. For such a simple program, the benefits you’ll see are pretty impactful.

LSA: Loose Stellar Allowances

Not our best acronym, we admit…but there’s no denying the benefits of a Lifestyle Spending Account. Easy to implement, far-reaching in use, and helpful for employees—if you want to improve your wellness benefit offerings, an LSA is the next logical step to take.

Awardco offers a unique Lifestyle Spending Account on our platform. Create customized programs that reward employees with points they can use on wellness rewards. Schedule a demo to learn more.