Attracting and retaining top talent is front and center for HR and benefits teams – especially with resignations at an all-time high.
Lifestyle Spending Accounts (LSAs) help HR meet employees where they are, offering flexible reimbursements that encourage total wellbeing with freedom of choice. These flexible offerings help smart companies positively impact business goals and outcomes.
In Session 2 of the Espresa Discovery Series on LSAs, we will cover:
– What’s possible with LSAs
– Total wellbeing that lives up to its name, including mental health support
– Tuition reimbursements and allowances
– Commuter benefits
– WFH and ergonomics
– Communications (mobile phone, internet)
Discover immediate and actionable ways you can create the most wanted new employee program. Watch the virtual forum video and/or read the transcript below.
Discovery Series Session 2: Understanding Lifestyle Spending Accounts (LSAs) Deep Dive, Session Two: Transcript
(Modified to remove superfluous language for readability)
Welcome everyone who has joined. Thank you for attending part two of our LSA Education Series.
Well, let’s get this kicked off with an agenda on part two of our LSA Education Series. First of all, I don’t know how many of you had the opportunity to attend part one last week. For those of you who did, thank you for attending, for those of you who LSAs are a new concept, we will take a moment to just touch on the concept. It’s a very vastly growing benefit offering across the United States and the globe. Then we’ll dive deeper into how to develop a comprehensive and inclusive LSA well-being plan.
What is a Lifestyle Spending Account? LSAs are oftentimes referred to as reimbursements, allowances, stipends, wellness, or wellbeing wallet, or something as broad as a perks program.
We’ll look into some additional plan examples. Over the past 20 months, we’ve seen our client base pursue a lot of different types of LSAs and really expand their offerings both to meet in the pandemic and post-pandemic world but also to help attract and retain talent during our current labor shortage. Then we’ll look at some innovative things that we’re seeing in the marketplace such as LSAs versus 401k match and when that might be applicable during the life cycle of your employees.
We have five generations in the workforce and each of them has different wants and needs when it comes to a benefits offering from their employers. Then we’ll look at a couple use cases as well from our clients that are being really innovative with this and they’re really seeing it impact both the engagement and retention of employees.
To kick it off, what is an LSA? An LSA is a Lifestyle Spending Account. This is becoming the common nomenclature that we’re seeing in the marketplace.
A Lifestyle Spending Account (LSA) plan design is both flexible and personalized – to reflect both the company and global region.
A Lifestyle Spending Account (LSA) plan design is both flexible and personalized – to reflect both the company and global region. However, there are folks who still refer to them as reimbursements or allowances or as stipends or perks, also a wellbeing or a wellness wallet for companies that are more focused on wellness and fitness. But really what it comes down to is it’s a predetermined amount of money to employees based on a plan design specific and unique to each client. This plan design is both flexible and personalized both by the company and for global companies generally we do it by geographical locations.
That makes it very different than your traditional HSA, FSA, where that’s strictly a US concept. No matter where you are in the United States, US tax code is pretty clear on what qualifies for something such as an HSA, or FSA. But now let’s say really the sky’s the limit. We can be creative and determine what your employees want to drive the results that you’re looking for. A few of the examples that we see driving those results are listed on the screen right here but historically a lot of companies focus on well-being things like reimbursements for onsite gym memberships.
That’s really pivoted to not only onsite gym memberships but virtual fitness. There are amazing courses right now by companies like Les mills or many of you may be familiar with Peloton where people are getting high-quality workouts from the comfort and convenience of their own homes. But it’s not just physical well-being. We’re also seeing things like financial well-being, and childcare, and we’ll get into some other cares such as pet cares become more and more common and then work from home. Ergonomic equipment, home office setups.
More organizations are moving towards hybrid work environments. For a lot of employees, though, work from home is permanent. Companies are working to support this to allow their employees to have their needs met and allow for heightened productivity in a home setting. We’re seeing more and more organizations go back to hybrid or in-person work but certainly, a lot of companies we’re seeing work-from-home is here to stay and how do we support that as a company to ensure that our employees have their needs met so they can be the most productive they can be in that environment. Then tuition reimbursement education, and then for some companies things like adoption and surrogacy apply as well. When you think about an LSA, you typically have a plan and then subcategories beneath those plans.
More organizations are moving towards hybrid work environments. For a lot of employees, though, work-from-home is permanent.
If we go with something let’s call this a wellness stipend, and maybe within that one wellness stipend plan you have four subcategories or some companies called them pillars and those four subcategories in this scenario are personal wellness, financial wellness, dependent care, or work-from-home stipend. Now in this particular wellness plan, there is a thousand dollars and what your employees are empowered to do is choose between these four areas how they want to spend this $1000.
If they want to spend that $1000 strictly on personal wellness, they are empowered to do that. But if they want to spend $200 on personal wellness, $300 on financial wellness, and the remaining $500 between either childcare or work from home, they can do that as well, and then the purpose-built plan that you have is going to provide you with the data analytics and reporting so you know what people are using it for, but also automate the taxation on a global scale eliminating the administrative burden.
Now, many companies also may offer a second plan. Maybe they have that well-being, a stipend or well-being LSA and then second plan might be tuition. In this scenario we have $500 for tuition, that might not have as many subcategories, that might strictly be one offering within that second plan. The key here is that the dollars cannot be co-mingled between the plan. I cannot take the $500 for tuition, use it on pet day in plan number one, they’re two distinct plans and that’s how you build it out and how you present it to your employees so they can really see the benefits that you’re offering.
We look across our vast client base. Here’s what we see from a data point on how much they’re investing in these types of plans. Now, I do want to highlight that we have removed adoption and surrogacy from this because those are very high dollar items, and the clients we have that offer that would skew the data points, but this is everything else that we’ve reviewed so far where some companies begin with around $500. They may be reimbursing for just gym memberships, or they may have a stipend, which may not cover the whole gym membership, but at least it subsidizes it.
Purchasing Power Parity encourages a global and happy workforce, meeting employees where they are.
Purchasing Power Parity encourages a global and happy workforce, meeting employees where they are. Whereas you go through you start to see greater and greater investments for companies that want to have greater and greater offerings as well as greater and greater impacts. Really the key to considerations here is how you want to invest per employee and which plans you want to invest in. The other aspect is how are you investing on a global scale. If you’re a global company, we have Purchasing Power Parity index. Quite a mouthful that will help you ensure that you’re offering an inclusive and equitable amount on a global basis, but also ensure that you’re not overspending in places as well making sure that it’s applicable to the standard of living.
Here are some of the areas where we’re seeing very frequently in our well-being plans, things such as physical wellness that’s been going on for quite some time. But in addition to that, how are we supporting our employee’s emotional well-being? That’s obviously a topic that’s top of mind. It’s very front and center every day and it’s something that companies are taking an interest in seeing that it’s just as important as the historic physical wellness. Additionally, financial well-being is incredibly popular.
LSAs support the whole wellbeing of employees, ranging from physical, to mental, to financial.
LSAs support the whole wellbeing of employees, ranging from physical, to mental, to financial. It’s important to help our employees with their financial well-being so that they can be the most productive they can be at work. If they’re stressed about their finances, or if they’re uncertain about things in their home life, oftentimes that carries over into their performance, how can we support them there? Then lastly, childcare, elder care, pet care. As I referenced we have five generations in the workforce currently. Depending on where you are in your working life cycle, you’re going to have different needs.
For some folks that might be childcare, for other folks that may be elder care, and for other folks that may be pet care. I think for a long time people offered maybe childcare benefits and some of the employees that may not have children felt alienated, where’s my benefit coming into place? We’re seeing companies make a much more inclusive offering by offering different things such as eldercare or pet care as well. Now, really dialing down into physical wellness. As I mentioned over the past 20 months, there’s been a very large pivot in the marketplace from, “Hey, we’re going to give you $40, but it has to be an on-site gym. These are the parameters, these are the amounts we’re going to reimburse. This may or may not cover the whole amount”, to broadening that offering.
Instead of it having to be that very traditional onsite gym, you’ve expanded that offering. You still may offer that, but maybe you’re expanding that to both in-person or online yoga. Maybe an unbelievable course selection from a company such as Les mills. I had mentioned Peloton ClassPass. There’s just a lot out there that’s available to your employees. Maybe you want to offer fitness devices and trackers where people can go in and use their money towards a wearable device, or maybe you want to offer a particular gear like shoes or other types of fitness gear that’s important to your employees.
Maybe they don’t need a gym because maybe they’re running trails on their own, that it’s not going to have a monthly fee but maybe for them those running shoes are important. Really a broad array of things that we’re seeing the marketplace offer here. From an emotional wellness standpoint, the topics that consistently come up are things like meditation. Are your employees taking moment to step back to really take a moment to think about their emotional well-being through things like meditation and mindfulness?
Additionally, sleeping aids and trackers. We all know that if you’re not getting good adequate sleep you’re going to be tired. It’s going to impact your work performance on a day-to-day basis and then another area is smoking or nicotine cessation. Smoking’s important, obviously, there’s also vaping that has become quite prevalent. How do we help these employees get away from that addiction to nicotine, whether that’s through classes or constant reminders or coaching? Using these funds to go towards helping them with that and improving their personal health.
LSAs are customizable to meet your employees where they are. From reducing student debt to planning to retirement. As diverse as your workforce is, your LSA plan can meet them there.
From a financial standpoint, there’s really a lot that’s available there. Again, as you think through the life cycle of your employees your retirement planning is very important at any age but maybe for some of your employees, particularly newer employees out of school, maybe they have a heavy student loan debt burden. How can we provide coaching or support around that? How can we help people with refinancing debt so that they feel more comfortable and confident on a day-to-day basis?
What type of coaching can we give people so that this aspect of the holistic person that comes to work really feels confident in the work that they’re doing, in the compensation that they’re getting from your company and the benefits so that they’re bringing their best self each day. Then I touched on this a few slides ago but just to dive a little bit deeper in what we’re seeing. There [are] a lot of legacy childcare aspects. We’re seeing that go much broader as well. Maybe some organizations are not only allowing for in-home care or daycare.
We’re also seeing companies put tutoring under childcare where they’re offering online assistance on tutoring. I have two young children. I’m slightly terrified for the new math that they’re going to be learning because it’s very different than how I did. Parents sometimes need help with tutoring their children to ensure that they’re receiving a quality education. But for folks who are further along in their career they may have children that are out of the house. Maybe elder care is important to them and they really need that level of support for their parents so that they can continue to focus on their life as well.
Then pet care which is something that has grown exponentially from our client base that they’re saying, “Hey, we really want to offer things to folks who may not have children, who may not yet have dependent parents. What can we do for them is that? Is that doggy daycare? Is that doggy gathering place? Is that medical expenses?” Whatever that is can be supported by a lifestyle spending account. Then work from home, a lot of aspects to working from home. If someone was going to an office every day they may have a lot of this but because they’re working from home, how do we ensure they have all of the resources and materials that they need to ensure that they’re successful on a day-to-day basis?
Make your workforce feel valued and appreciated in your company.
It’s really up to you at what you want to offer for maybe it’s one plan work from home and you have all of these different subcategories like desks, chairs, internet phone, maybe you’re even providing food delivery costs for or surcharges. We do have clients doing that. Some of them just pay the delivery fee and it’s up to the person to pay for the food. Others provide the full service. Again, it’s completely up to you on what you want to provide to your employees, but it’s another way to help them know that you appreciate the work they’re doing. They’re valued as an employee and in addition to the paycheck, this is what our company is focused on to ensure that you feel well about working here.
Tuition. Tuition reimbursement has been around for a very long time but what type of eligibility are we seeing in the marketplace? It’s very common to not be eligible for a tuition plan until you’ve been employed for a certain period of time. In this scenario, we have one or more years of employment, you must be a full-time employee benefits-eligible, et cetera. This should be labeled by your LSA provider so all of this is automated. You never want to have a scenario where someone in finance and HR is responsible to do this manually because A, it’s incredibly burdensome and B, it can lead to dispirit non-inclusive experiences across your population particularly if you have multiple locations.
It’s up to you, what type of fees are covered. Typically, it’s, all of the registrations, any materials such as books or online courses. In some cases, if you’re going on-site, they may pay for the of parking. But again, it’s ultimately up to you and your LSA provider to design these programs. A good provider is going to be able to provide best practices on what they’re typically seeing both across the marketplace, but also in your industry. Then you can make the determination on what you want to offer to your employees.
Then lastly, what amount of tuition are you going to be reimbursing for? There may be some folks that want to go to a more expensive school. There may be a finite amount of money, they can choose to pay the difference and that’s something that quality software can support as well. Here’s a case study of a client of ours there. This particular client is in biotech. Biotech is an incredibly challenging labor market. It has been for some time. It’s even increased in the current labor shortage that we have and the feedback they received from their employees is that they wanted a much more flexible benefit arrangement.
Not only were they hearing this in things like exit interviews, but this particular client was doing employee engagement surveys and it was a reoccurring theme. One of the aspects that they offered was at the time they had a very restrictive reimbursement program for things like a gym membership. They decided they wanted to open that up to expand both LSA and include the retirement matching in there. An employee can choose whether they want X percent match in their retirement account through 401k, or if it’s more important to them they can put some of that matching money more into the LSA so that they can service things that are more important to them right now.
Inclusive financial wellbeing to meet the needs of a diverse workforce. Some of the things that we’re seeing on the younger end of our employer demographics are they want to have that money to go towards a first-time home purchase, towards student loans, towards things that are really pressing in their lives right now, as opposed to having that match for 401k. What we did is we really built this out and in addition to the traditional gym membership which we kept in fitness, we built out a much more inclusive platform that also offered mind and body experiences to help with that aspect of wellness, helping with nutrition, sleep.
Inclusive financial wellbeing to meet the needs of a diverse workforce.
Getting that inclusive financial well-being so that the folks that were saving for retirement or closer to retirement had the support and advice they needed so that the other folks on the other end had that ability to put money towards a first-time home or student loans. We also opened it up to charity donations. We know this is incredibly important to some of your employees. It’s much more engaging to them to have the ability to give to charity and in some cases have that match than to purchase something for themselves.
Then lastly, as I mentioned we can do the retirement plan indicator. The second plan that we built out with this particular client was how can we improve the productivity of our employees? How can we help with their development in education? This was another topic that was coming up in their surveys that we feel there’s an opportunity for us to develop much more efficiently and expansively if we had more resources. They did that. They also invested or allowed their employees to invest in better IT equipment.
Companies need to invest in purpose-built software to implement plans for their global workforce.
Companies need to invest in purpose-built software to implement plans for their global workforce. A lot of the L&D that they’re providing is through LMS style courses so IT equipment was incredibly important. Then expanding the work-from-home type of things, ergonomics, et cetera because they’ve recognized that a large part of their workforce is going to be work from home if not forever, at least for the foreseeable future. Then as we implement these plans depending on what you add into them some of the items will be pre-tax similar to HSA, FSA, many will be post-tax meaning they are taxable depending on the jurisdiction or the country that you’re in meaning that you need software that’s purpose-built to do both.
Traditional HSA and FSA providers, they are built strictly for pre-tax if your employee reimburses for let’s say $350 a quarter for whatever LSA plans you have, they receive that whole amount. They have no way to break it out between pre-tax and post-tax. Same thing if you try and do this in an expense system like in Concur or Expensify, they do not have the capability to code for taxation, meaning the larger your organization is the heavier the administrative burden is.
A purpose-built LSA is happening in real-time and fits in your employees lives. A good purpose-built LSA is going to have a file feed with complete consensus information and the ability to automate the taxation meaning that you never have to do it manually. It’s going to happen in real-time, it’s going to be a seamless experience for employees. With that, let’s wrap up. We certainly can do some Q&A. Sylvia, are there any questions from the audience?
With that, let’s wrap up. We certainly can do some Q+A. Sylvia, are there any questions from the audience?
Sylvia Flores, Head of Brand, Marketing + Culture, Espresa // We do in fact, Brandon, thank you so much for your insights here. We do have several questions. I have one from David asking: Can it be used towards mental health counseling such as talk space or better help platforms that don’t use insurance?
Brandon Markham // Absolutely. That’s part of the wholeness and the whole well-being that I talked about is let’s make this not only about physical health, let’s to make it about mental health, financial health. We know people bring their whole selves to work, so let’s make sure that’s the best person that we can have.
Sylvia Flores // I love that answer by the way. I love that. Francine asks, can you clarify how 401k matching versus an LSA plan works?
Brandon Markham // It’s very straightforward. If you have, let’s say a 5% 401k match and that’s X dollar amounts for that employee, instead of taking that whole match, they would take a portion of that, put it in their LSA and use it for something that’s more pressing for them based on where they are in their employment life cycle. The use cases that we hear time and time again are things like student loans and first-time home buyers where that may be very applicable to someone who’s recently out of school or recently out of graduate school for someone who’s nearing retirement. Hopefully that’s not their focus. They may be much more focus on getting that 401k match, ensuring that they have the most put away so they can really enjoy that time.
Sylvia Flores // That’s great. Rachel asks: If there is a carryover or forfeit of LSA benefits, does that hit the employee’s taxable income?
Brandon Markham // One of the nice things about an LSA, and I’ll take this as two parts. First, the carryover, then the forfeit. Starting with the carryover, if you are doing, and I’ll stick with $350 a quarter because that’s the example I used previously, that’d be $1,400 a year. You as a provider can choose to set up the plan one of two ways. The first is you use the $350, or you don’t. There’s never any forfeiture, it’s run through payroll making it again much different than HSA, FSA.
Whatever that person actually utilizes out of that $350, they’re reimbursed for, you as a company invest that in the person and they have that. You can also carry forward that money. If the person chooses not to spend the $350 in that quarter, you can apply their remaining balance to Q2, Q3, et cetera. That’s part of the plan design. Again, that’s the key to having a purpose-built platform as opposed to HSA, FSA which doesn’t have a type of flexibility.
Now, the second part of that question, forfeiture, which I did touch on a little bit in the front, there’s never lost dollars or taxable amount that isn’t spent in an LSA. If someone has $350 a quarter they spend $280, the company invests that $280, not the 350, that person receives the $280 not the 350. They’re only taxed on the of $280 as well. I hope that was clear. I know that was a lot of numbers. If you want to review more use cases, feel free to reach out to us at Espresa and we can go through both some pre-tax and post-tax examples with you one-on-one.
Sylvia Flores // Great. That leads into this next question. Ron Jay wants to know, do you have support to get budget approval from the CFO and CEO?
Brandon Markham // Yeah. We certainly can give you some materials just reach out. We’re happy to review both some data points we have on turnover. Everyone’s heard about the great resignation. I don’t need to harp on that but we have some great data points. We also have some benchmark data on what we’re seeing across the marketplace and the impact that’s having. Happy to do a deeper dive there.
Sylvia Flores //Excellent. Insular is asking, can Espresa basically manage the plan once the design is complete?
Brandon Markham // Yes, that’s what we do for our clients is we manage the plans, we do regular business reviews with them to ensure they’re getting the most out of their plans. We also do that on a geographic basis because there are certain areas both domestically within the United States, but more so internationally where we do see variances within the plans and all of that is going to be automated. We also do the adjudication, meaning we review the receipts for you so you don’t have any of that administrative burden.
Sylvia Flores // Great. Chris is asking, how does the employee receive the benefit? Is it a reimbursement in their bank account? If so, who is facilitating the reimbursement or is it added to their paycheck or another way?
Brandon Markham // Great question, Chris. Typically, the way a person receives the reimbursement is there’s a simple file feed that goes back and forth between a client and Espresa that’s going to be coded, and it’s just going to run through payroll so that it’s taxed appropriately whether it’s pre-tax or post-tax. In most cases, LSAs are post-tax and needed to be taxed. That’s the most efficient way to do it and the easiest way to do it. The employee is going to receive that, it’s going to be taxed appropriately and depending on the cadence of your payroll, it’s just an automated process that happens in most cases every couple weeks.
Sylvia Flores // Great. Chris, hopefully, that answers your question there. Fiona is asking, can you have multiple plan designs per campus and how does that work for non-US?
Brandon Markham // Very good question, Fiona. Absolutely. It’s very important for large organizations to have different plans for different campuses, particularly if you’re going to have some folks that maybe are on site, maybe that site has an onsite gym at it. You’re probably not going to be giving those folks a stipend to then go purchase a gym membership because you’ve already invested in that. Whereas folks at other campuses or work from home they may not have that benefit so you may want to offer a stipend for those folks so that your plan is inclusive not only to the people at the home office with the onsite gym, but to everyone else as well.
That’s very important from a domestic standpoint. Part two of your question, the international aspect, that’s also very important where let’s say you’re doing, I’ll stick with $1,400 in the US, what is the appropriate parity of that in a place like the UK or India, or a number of other countries that we support? We automate all of that for you. We have benchmark data and purchase power parity index that we update on annualized basis. That’s our starting point. Again, if you want to make specific changes to campuses globally, and we can do that manually as well. Very good question though.
Sylvia Flores // Awesome. Then another one from Chris, what is the cost to the employer for the LSA service?
Brandon Markham // Chris, we would love to have that discussion. Don’t have enough information just in the chat to dive into that. It’s going to depend on a variety of things. The size of your organization, how many countries you’re in, how many LSA plans you’re going to provide, what the spends going to be. Because again, we do the adjudication so we need to have some parameters around that, then we get a pretty good idea of what the usage is based on our vast experience and the number of folks that we have globally using this. Then we put together a custom proposal for each prospective client.
Sylvia Flores // That’s great. If anybody has any additional questions I’m not seeing anymore in the QA section or in the chats. With that, I think it’s a wrap.
Brandon Markham // Very good. Well, thank you everyone who is able to attend today. We’d love to have you join again next week for LSA as a good global benefit. We’re going to go deeper into what we’re seeing on a global scale when it comes to LSAs. One of the nice aspects about LSAs if you’re a global organization is it’s a benefit you can provide everyone unlike HSA, FSA which is very US-centric.
LSAs are much more global. Then coming back November 30th after the Thanksgiving holiday, we will be doing the last of our four part series on gamifying and getting creative with LSAs. Again, we’d love to see you join. If you have any questions or want to talk pricing or more on the pre-tax, post-tax, don’t hesitate to reach out to us here. We’re here to be a resource and once again, thanks for joining.