Lifestyle Spending Accounts (LSAs), or well-being accounts, have become a popular way for companies to provide employees with an inclusive, anytime benefit. Not subject to government regulation.

Companies are expected to provide traditional and regulated benefits such as 401(k), health insurance, and, secondarily, HSAs and FSAs. An LSA is employer-funded and provides an additional allowance for employees otherwise not covered by “traditional benefits.”

Read on to learn the difference between LSAs and traditional benefits and how to enhance personal employee benefits that you can launch any time of year.

Here’s what we’ll uncover: 

What defines traditional benefits?

A “traditional” benefit, such as a 401(k), health insurance plan, HSA, or FSA, is:

  • Government-regulated: Traditional benefit accounts are regulated and ensure strict compliance as defined by the Employee Retirement Income Security Act (ERISA) and the Health Insurance Portability and Accountability Act (HIPAA).
  • Funded by pre-tax dollars: They offer pre-tax dollars deducted from an employee’s paycheck if not covered or subsidized by the employer.
  • Limited to open enrollment: To participate, an employee must sign up within an open enrollment period or have a qualifying life event to enroll outside that window. They may not change their plan until the next scheduled open enrollment.

LSAs vs. traditional benefits

LSAs deliver flexibility to both the employee and employer. With the right HR technology partner, they are lightweight in effort and with maximum employee experience impact.

“All companies offer the core benefits of medical, dental, and 401(k) – but now, more than ever, it’s critical to create a benefit offering that focuses entirely on employee experience. And it’s no longer just about the life people live at work. It’s everywhere they are.” — Joe Farris, Co-Founder of Nua Group and Mercer Leader

How does an LSA differ from traditional benefits?

  • No need to align to a benefits plan year: You can launch an LSA any time of the year. For example, you could launch on April 1 or July 1. Since it is not a regulated plan benefit, you can implement it whenever you’re ready.
  • Not government-regulated: They are unregulated by a governing body. “Compliance” is redefined as plan design and is typically architected by human resource and finance teams.
  • Funded by post-tax dollars: These are post-tax dollars the employer provides for these benefits, which fall outside of a traditional benefits plan, e.g., 401(k) and covered medical expenses.
  • Minimal tax liability for employees: Employees only pay taxes on what they use or are reimbursed for.
  • 100% customizable: LSAs have no parameters on expenditures and no budgetary minimums or maximums outside of the employer’s plan design.
  • Globally available: LSAs are globally relevant and available to all employees regardless of geographical location because they have no regulating governmental oversight.
  • LSAs support DEI: Inclusivity built in, allowing employers to address benefit gaps.

LSAs put employees at the center, making them the most inclusive benefit available.

LSAs by any other name

LSAs can also be referred to as reimbursements, perks, allowances, stipends, and wellness or well-being wallets. The common denominator with an LSA by any name is that there is a predetermined amount for employees based on the plan design and budget. It’s also an increasingly popular way of referencing reimbursements and others commonly referenced above.

With the move from an employer-to-employee market shift brought on by the pandemic and the ongoing evolution of the workplace, employees seek more. And because an LSA does not require an open enrollment period like traditional benefits, employers can launch an LSA at any time of the year.

And because an LSA does not require an open enrollment period like traditional benefits, employers can launch an LSA at any time of the year.

For example, if an employer decided to launch an LSA in 2023, they could do it any month that suited their schedule and budget for the year. The usual approach is to provide a prorated amount in the first partial year and the total amount in the next plan year. This allows the employers to act on budget relocation at any time — such as given budget constraints and multiple point solutions that may need to be replaced or consolidated by a comprehensive LSA starting in any calendar month.

The “life” in Lifestyle Spending Accounts is a meaningful start to creating a program that meets people wherever they are, anytime.

The “life” in Lifestyle Spending Accounts is a meaningful start to creating a program that meets people wherever they are, anytime.

The global engagement success blueprint in the making

The future of HR is something companies are banking on now while in a state of perpetually changing motion. Espresa has the great fortune of working with some of the finest HR minds and companies in the world who are trailblazing the path to ignite employee experience benefits.

First, let’s talk about the elephant in every room: budgets and how to effectively fund an LSA program, LSA employee wallet, and potentially a total well-being program in combination. LSAs are incredibly customizable for a company, and employers can define what they offer, no holds barred.

Human resources are a lot like engineering. They innovate while relying on a community of innovators to move a wealth of information sharing forward. And HR is in the unique position of paying that innovation forward to every human within their employ. A great honor, responsibility, and culture definer.

Human resources are a lot like engineering. They innovate while relying on a community of innovators to move a wealth of information sharing forward.

The good news is that regardless of your budget, you can make an LSA work for your company and employees. And LSAs can subsidize people’s lives, including offsetting inflation burdens while bringing personalization and freedom of choice into a flexible employee-driven benefit.

Best practices in plan design

Your company’s mission, vision, and culture can help craft an LSA plan that represents who your people are. And there are many successful workplace LSAs that employers can use as models for their own. For example, Google’s LSA covers the cost of gym memberships, fitness classes, meal delivery services, and more. Similarly, Microsoft’s LSA covers the cost of educational courses, books, and other materials related to professional learning and development. Additionally, Amazon’s LSA covers the cost of recreational travel and related expenses.

Espresa clients offer unique programs, including LSA wallets with total well-being initiatives, such as mental health and dependent care for children, adults, and pets. They also provide remote classes for cooking, laughter yoga, community gardening, and inclusive dance.

Some companies like Airbnb, PricewaterhouseCoopers (PwC), Capital One, and Salesforce offer extensive benefits for extended transgender health care, including procedural and physical augmentation (for employees and dependents) – even wardrobe allowances. These are often benefits not covered by traditional health insurance that can be covered by employee experience and company mission-driven benefits.

Challenges that are worth the challenge

If you are in the United States, engaging a provider is an easier task. If you are a global company, however, there are many challenges:

  • Managing, verifying, and adjudicating claims in multiple languages and currencies
  • Delivering an equitable plan across the entire employee base, regardless of location
  • Creating a marketplace that does not exploit markups and is vendor agnostic

A purpose-built LSA is designed to engage employees without burden to HR or finance, regardless of location. The approval process and flow must be seamless and friendly for all parties. The interface needs to be where the employee is, wherever they are. This is where 80 percent plus participation rates happen.

Increased participation equals engaged employees and better business outcomes.

When a company pays for any employee experience benefit, participation and the (real-time) analytics are vital to backup utilization of the platform.

Increased participation equals engaged employees and better business outcomes.

How much to budget for an LSA

Budgets may decrease, but the need for talented employees to maintain business continuity is not. What is top of mind with HR leaders right now is people reductions and layoffs. When a company right-sizes its workforce, it must enhance and double down on culture and engagement benefits.

What impact are you driving as part of your employee value proposition?

LSAs can support all.

Here is what Espresa’s global research showcases for the most popular programs and at every level of budget

Espresa Lifestyle Spending Accounts Data from the Espresa 2022 LSA benchmarking report

Getting started with LSAs

The type of effect you drive is part of your employee value proposition. Talent attraction, retention, and experience are top of most lists. When you find the right LSA provider, they will deliver on these priorities:

  • Create a strategy for LSA implementation
  • Help define who is responsible for managing them and how they will be communicated to employees
  • Deliver a real-time system for tracking and reporting on use, including impact on employee engagement and morale
  • Consider the types of LSAs available and the benefits they offer specific to your organization
  • Identify ways to reduce costs while still providing employees with culture-enhancing benefits
  • Leverage successful workplace LSAs as a model to help define culture transformation

Take the first step toward boosting employee engagement and well-being with a Lifestyle Spending Account from Espresa. Reach out to our team for a free demo!

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