What is a stipend?
The word stipend translates to “small payment” in Latin. It’s a set amount of money that you offer employees to cover specific costs. In the past, you’d define stipends as compensation for people who aren’t eligible for a salary. These days, you can use them as fringe benefits to help you stand out ahead of other workplaces and boost employee experience in a tangible, meaningful way.
Think of stipends as thoughtful monthly allowances that are paid alongside wages. For example, you might offer a WFH stipend of $100 per month for phone and internet costs or invest in employee wellness with a $50 allowance for gym membership.
How do stipends work?
When you offer a stipend, you’re providing funds employees can use for a specific purpose. You might offer them to pay for virtual team lunches to help remote workers feel included or provide funding towards training programs to help with professional development.
Stipends should be easy for employees to access, and they get paid at regular intervals, sometimes alongside wages. Programs can differ; the employee might request funds and receive them directly, get a prepaid card or make a purchase upfront and claim it back when they submit receipts.
Who’s eligible for stipends?
Stipends used to be for people who don’t receive a salary or aren’t beholden to minimum wage laws. They provided financial assistance, helped cover living costs or covered study expenses for researchers, apprentices and clergy. These roles still attract stipends, but the concept has been extended to cover fringe benefits for employees.
All team members usually have access to the same stipends, so everyone benefits from the same perks. This can unify the workforce by offsetting issues regarding hierarchies and providing everyone with the same opportunities for self-improvement.
What’s the tax situation regarding stipends?
The IRS considers stipends as taxable wages, but taxation works differently than employees’ salaries. Generally speaking, you don’t need to deduct tax from stipends, but employees must use a portion of their stipend to pay towards state and Federal taxes at the end of the fiscal year. All you need to do is include the stipend as an extra line item on your team’s paycheck.
9 types of stipends employers offer employees
In recent years, employers have found creative ways to use stipends to improve employee experience. Below are some examples of traditional and modern fringe benefits:
- Professional development stipends to cover job courses, learning and training
- Health insurance and wellness programs to keep employees and their families healthy and happy
- WFH stipends to cover home office expenses, virtual lunches and utility charges
- Fellowship stipends covering living and academic research costs for medical professionals such as nurses, physicians and dentists
- Research stipends to cover rental expenses for researchers and students while they attend an academic program (usually a doctorate)
- Stipends for religious leaders and clergy-in-training to cover living expenses
- Per diems to compensate employees for travel expenses and meals
- Health insurance stipends for remote workers based in other countries
- Smartphone stipends for sales reps and managers who make business calls
Which stipends do employees like best?
According to McKinsey, employee experience is the standard defining how companies should interact with people. And research shows that learning and development is at the top of many employees’ list of priorities. Employers who invest in developing team members benefit from a more knowledgeable, engaged workforce. As such, professional development stipends are popular due to their exceptional ROI.
That said, many employers are opting to align fringe benefits with company culture to help reinforce values and support their brand story. You can be as creative as you like when designing a stipend program, and should choose the benefits that best suit your organizational goals and vision.
Stipend vs. salary
Stipends and salaries are financial incentives offered in return for work, but they differ in a number of ways, which are outlined below.
Salaries and hourly wages must meet minimum wage requirements for the state your company operates in. On the other hand, the value of the fringe benefits you offer can vary significantly, and there’s no set minimum amount.
Stipends are distributed under the proviso that employees spend them in a specific way. In many cases, employers ask them to provide receipts to prove the money has been used for the designated purpose. As an employer, you have no jurisdiction over how workers spend salaries and hourly wages.
Stipends are usually consistent across all employees and don’t vary based on seniority or number of hours worked. There’s significantly more variability when it comes to hourly wages and salaries, which can increase or decrease based on overtime, position held and experience.
The tax laws governing wages and stipends differ slightly, with the former being withheld automatically and the latter being employees’ responsibility.
Benefits of stipends
Employee experience is one of the key trends shaping the future of employment, and offering stipends is a great way to remain competitive in today’s market. But the benefits of offering fringe benefits don’t end there. More reasons to implement them in your company include:
- Stipends offer benefits that are specific to your company, creating a personalized work experience for your teams
- It’s easy to automate stipend payments, taking the strain off HR
- Taxation compliance is simple for employers
- Stipends tend to offer a human ROI, whether it’s increased knowledge, fitness or sense of wellbeing
- All employees usually earn the same fringe benefits, evening out the playing field and making entry-level employees feel valued
- You can gain a competitive advantage by aligning perks with company culture
Offer stipends that match your company culture
Company culture drives modern businesses, and aligning your values with your employees’ values is great for morale and productivity. A great example of a fringe benefit is the $200 monthly stipend offered to cover dates for people working for Hinge, the dating app. Not only did this make global news, helping to spread the word about the app – but it’s also a great way of attracting employees.
Having creative stipends that are aligned with your values makes job ads more appealing and fosters a happy workplace.