The Loop

Lifestyle Support For Workers

Filed under: Benefits

In the US, children can legally be employed at age fourteen. On the other end of the spectrum, there are well over a dozen octogenarians still serving in Congress, not to mention that the current President of the United States turns eighty-one in November – and is seeking re-election.

Today, there are broadly five different generations in the workforce, representing a wide range of wants and needs. Employers should remain cognizant of this phenomenon and develop a flexible benefits package to accommodate this vastly diverse population of workers.

Moreover, workforce demands and expectations have changed significantly over the last several years, largely influenced by the economic and health risks brought on by the pandemic. What workers seek most is a comprehensive range of wellbeing benefits that address financial, physical, and mental health.

Consider the wide expanse of benefit expectations: Baby Boomers are focused on healthcare expenses, savings opportunities, retirement and long-term care planning. Generation Z, on the other hand, expects diversity and inclusion-related benefits, and actively seek mental health care resources from employers. It is a brave new world, one in which recruitment and retention rests precariously on how well worker expectations are met.

Starting in 2017, Lifestyle Spending Accounts (LSA) were introduced as a one-size-fits-most solution. Since then, these accounts have evolved to incorporate maximum flexibility in employer-funded benefits designed to reimburse a wide range of worker expenses. The hallmark of a Lifestyle Account is personalization. Depending on structure, every worker can be reimbursed for expenditures that reflect his or her personal lifestyle.

How It Works

The LSA is funded by the employer as a post-tax reimbursement account. Since it is a taxable benefit, it is not subject to IRS nondiscrimination requirements. Also, how the LSA is structured is strictly up to the employer, and multiple benefit-specific accounts (e.g., fitness/wellness, entertainment, work-from-home expenses) with specific limits (e.g., eligible population, dollar amount, spending timeframe) can be offered together.

By contrast, a single LSA may be designed broadly enough to encompass the entire workforce for a wide variety of refundable expenses. However, it is not advisable for employers to combine taxable and tax-free eligible expenses due to the complexity and potential compliance issues.

While the account is pre-funded, employers retain any unused funds and workers do not pay taxes if they don’t use the benefit. Once an employer sets the parameters and funding budget, it then evaluates worker claims to ensure they meet requirements and then process reimbursement. On average, an individual worker LSA may be funded with anywhere from $500 to $2,000 a year; perhaps more for a specific high-end benefit such as adoption assistance.

Flexible Benefit

Employers often find that only a small portion of their labor pool takes advantage of certain benefits. Specific assistance programs, such as childcare or student loans may be highly valued but apply to only a small subset of the overall workforce. A broadly designed Lifestyle Spending Account can present a tremendous advantage by eliminating inherent discrimination in some employer benefits.

A single, highly flexible account can replace a multitude of benefit offerings by reimbursing a wide range of expenses, from tuition reimbursement to gym membership to mental health resources. For example, common expense categories include:

  • Fitness and wellness expenses: gym memberships, sleep tracking, and at-home workout equipment
  • Work from Home (WFH) expenses: home office equipment, office supplies, ergonomic accessories, internet bill
  • Professional development: continuing education courses, workshops, books, subscriptions, conferences
  • Return to office incentives: gas, auto maintenance, public transportation expenses, parking, meal reimbursement, dry cleaning
  • Care services: adult and childcare related expenses
  • Family planning: fertility, surrogacy, and adoption expenses
  • Convenience services: grocery delivery, meal delivery, housecleaning
  • Financial services: financial planning advice, financial literacy classes, books, subscriptions
  • Pet care expenses: pet insurance, food, prescriptions, toys, grooming, walking/daycare, veterinary fees
  • Entertainment expenses: concert and sports tickets
  • Vacation expenses: airline travel and hotels

Retaining Their Lifestyle

A Lifestyle Account works as a strong retention benefit because people get used to the perks they enjoy – especially if they get to choose them. The account also allows them to change their benefits as often as they want. One month a worker may try yoga classes; the next month a couple may take salsa lessons; and another month buy vitamin supplements and workout gear.

The point is, many people stay with their job for the lifestyle it provides them, from a good salary to subsidized healthcare insurance to a short commute. And nothing says a company cares about workers retaining their current lifestyle more than an employer-funded LSA – in which the worker chooses how to spend that money.

Do-Gooder Benefits

Another way LSAs have evolved recently is to enable charitable giving. From supporting the local symphony to aiding victims in Ukraine, an employer-funded LSA allows employees to make donations to passion projects without sacrificing their income-based household budget. A recent study by Deloitte found that more than three out of four (77 percent) of Generation Z would like to work for a civic-minded employer whose values align with theirs.

LSA Popularity

While LSAs have been around for seven years now, more companies adopted them when employment rates increased and the job market grew tighter. In fact, one survey found that in the past year alone, the percentage of US employers offering LSAs grew from 37 percent to 51 percent.

Employer Perks

An LSA is a way employers can increase worker compensation without increasing base pay. If job candidates baulk at their initial compensation offer, employers can remind them that the company LSA offers a way to pay some of their regular household expenses, citing the total amount available for reimbursement tacked onto to their salary.

Furthermore, rather than invest in a variety of wellbeing initiatives that not all workers can use, a flexible LSA can address benefit gaps based on gender, racial/ethnic groups, LBGTQ+ individuals, or populations with special life needs, such as disabilities, family building, or emergency relief.

The traditional menu of benefits no longer addresses the diverse needs of today’s workforce. By prioritizing benefits that can adapt to personal activities, stressors and events, employers demonstrate that they are sensitive, inclusive, and care about worker interests and lifestyles.

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