What Is a Lifestyle Spending Account, and How Can It Help With Employee Retention?
Offering a lifestyle spending account can help employees reduce financial stress and make tangible progress toward their health and wellness goals.
As employers strive to attract and retain top talent, physical, emotional and financial employee well-being has become a key focus in the benefits space. With this focus, wellness and lifestyle spending accounts (LSAs) are trending as many employers strive to find solutions.
Read on to learn about the evolution of lifestyle benefits and how you can incorporate LSAs into your benefit offerings.
What is a lifestyle spending account?
An LSA is a post-tax account funded by employers that allows employees to be reimbursed for expenses that relate to their lifestyle, including financial, social, emotional and physical aspects. It's one way that employers can give employees a boost in areas outside of typical benefits. The employer decides who's eligible to participate, what the allowance will be, what the eligible expenses are, what documentation or proof of purchase is required and how employees will be reimbursed.
What can lifestyle spending accounts do?
LSAs can cover a broad range of topics and are highly customizable, which is crucial because well-being means different things to different people. Knowing what's important to your employees means being able to create an LSA that appeals to your people in a targeted and personalized way.
Common LSA categories that employers build into their plans include allowances and reimbursement for expenses related to:
- Physical health: gym memberships, virtual fitness subscriptions, personal trainers, home exercise equipment, nutritional counseling and cooking classes
- Mental health: subscriptions and services involving mindfulness, meditation, personal growth and life coaching
- Family-related services: child and elder care, adoption, surrogacy and infertility resources
- Financial needs: student loan assistance, financial planning services, income tax preparation, estate planning and utility payment assistance
- Catch-all categories: various interests (e.g., charitable giving) and incidentals (e.g., commuting costs)
These are only some examples of how employers are using LSAs to support employees' needs, and they're constantly evolving. It can be to your advantage to stay flexible and adjust your LSA offerings as trends change.
Setting up a lifestyle spending account
If you decide to incorporate an LSA into your benefits plan, you'll have some administrative steps to tackle. Each employer and vendor they choose to work with will have a different setup, but these are some general considerations:
Choose which expenses will be covered
As noted, the range of possibilities is extremely wide. You might start by assessing the needs of your employees and researching industry trends. It can also help to find out what competing employers offer.
Set a reimbursement cap and other limits
Based on your available budget, determine how much each eligible employee will get to spend and what kind of time limitations will be involved. You'll want to consider whether you'll offer it as a lump sum for the year or split it into monthly allowances and whether the account balance would expire, reset or roll over at the end of the benefit period.
Decide how to manage the claiming process
In some cases, employers require employees to submit receipts to get reimbursed through an LSA. If you go this route, you'll need a system and a set of rules for the paperwork. Depending on your organization's compliance needs, you might consider allowing employees to claim expenses or use the benefit without requiring detailed proof to make the benefit more accessible.
Inform employees about the program
It's a good practice to automatically enroll all eligible employees in the program and present them with initial information so they know what their LSA benefit is and how to use it. Let them know how to access the program, how to find what's covered, what the limits are and the claiming and reimbursement processes.
Review the spending reports regularly
Auditing the program periodically is necessary. Not only will it help you identify use rates and decide if you need to adjust your offerings, but it can reveal problems and any signs of fraud. Most organizations review their LSAs quarterly or semi-annually.
5 benefits of offering a lifestyle spending account
Offering an LSA as an extension of health and wellness benefits provides employees with practical support they can use when and how they need it to address their individual situations, priorities and goals. Here's a look at the key benefits employers can expect from LSAs.
- Provides meaningful wellness support. A recent Forbes article pointed out that internal employee well-being programs don't usually improve employee mental health but that giving employees a way to pay for care and services elsewhere can make a difference.
- Empowers employees with choices. What people need to take care of themselves or improve their daily lives looks different for everyone. Rather than gifting everyone a gym membership, offering an LSA lets your employees define for themselves what well-being means to them.
- Acknowledges work-life balance. With an LSA, you're giving employees an extra resource to target areas of stress in their personal lives. It's a clear signal that you support whatever they need to help them be their best selves.
- Promotes organizational values and culture. What you offer through an LSA — and the fact that you offer one at all — demonstrates a commitment to employee well-being and an investment in their overall success.
- Potentially increases productivity. Gallup polls consistently show that when employees feel that their employer cares about their well-being, then levels of satisfaction, engagement and productivity are higher.
Can LSAs help with employee retention?
Another key benefit of offering an LSA is its potential impact on employee satisfaction and retention. Research from MetLife found that as employee wellness has fallen in recent years, so has overall benefits satisfaction. Investing in wellness proactively with an LSA, especially those designed to reduce financial stress and support employees' health and wellness goals, can directly address this concerning trend.
Gallup found that 61% of employees find it very important that their employer care about their work-life balance and well-being. When it comes to employees' priorities, a Monster survey revealed that 38% of workers feel well-being is more important than a salary increase and that 43% rank well-being higher than having growth opportunities.
How much do companies typically offer in LSAs?
It can be hard to pinpoint how much money the average employer contributes to their employees with LSA benefits. For companies who use HealthEquity, a popular benefits solution available on ADP Marketplace, the average annual amount spent per employee is $1,100.
HealthEquity manages over 500 programs and reports that the median amount for annual reimbursement is $600 per employee, though the range can vary greatly from $240 to $10,000. Such a wide range means companies of all sizes can give their employees whatever boost works best for them.
Consider what an LSA can do for your organization
The realm of possibilities with LSAs is varied and broad. As you think about implementing one in your organization, it's important to make sure your program is designed to align with your overarching goals. When your workforce is engaged in your benefits package and offerings, they'll be reminded of the value you provide and how much you care about their well-being.
HealthEquity, an ADP Marketplace Partner Award Winner, makes integrating an LSA with your other benefits plans simple by offering a total solution benefits package, delivering the integrated solutions you need to simplify benefits and truly impact people's lives. You can explore several HealthEquity products, from health savings accounts (HSAs) and flexible spending accounts (FSAs) to commuter benefits and COBRA, in the ADP Marketplace. Visit HealthEquity on ADP Marketplace to learn more.
