Operating in the current economic climate requires that companies do more with less. Whether that means they have smaller budgets, fewer people, or less time to go-to-market, highly engaged and productive employees are a critical piece of an organization’s success. In fact, companies with highly engaged workers have 23% higher profit than those whose workers are not, while disengaged employees cost the U.S. economy roughly $550 billion a year.
But creating a culture of engagement isn’t simple. One place to start is to incorporate employee empowerment and wellness into the company ethos by offering a Lifestyle Spending Account (LSA). An LSA signals to employees that the company not only supports their wellness (physical, mental, and financial) but it also believes employees are the ones who can best make decisions about what they need. It empowers them to take their wellness journeys into their own hands.
By giving employees the freedom to use their account for expenses that best suit their wellness needs, LSAs help create a company culture of wellness and empowerment that not only produces highly engaged, productive and loyal employees within your current workforce, but also makes your company more attractive to potential candidates. It could also help you save money. Here’s how.
A Brief overview
An LSA is an allowance companies give to employees to spend on pre-approved expenses. It’s completely employer-funded, employees pay income taxes on what they spend, and employers can design the plan almost however they like. Employers can choose the amount of the allowance, the expenses for which they want to pay, how employees access the money (i.e. must they pay upfront and submit the expense for reimbursement or will they be given a preloaded card), the cadence at which the money is replenished (e.g. monthly, quarterly, yearly), and more.
Companies can choose to have one large, all-encompassing LSA for general expenses, or they can have multiple, more targeted LSAs (e.g. one for work-from-home expenses, another for fitness, and a third for personal development).
The only things a company can’t do when designing their plan are:
- Cover expenses through the LSA that could be covered through a tax-advantaged account or benefit such as an HSA or FSA.
- Cover medical expenses, as this would qualify it as a health plan.
Should my business offer an LSA?
The ability for companies to tailor their LSAs to meet the specific needs of their workforce makes this benefit one of the most potent when it comes to defining company culture. Especially if the company wishes to incorporate physical, mental and financial wellness into its ethos.
Companies can use the expenses they cover via the LSA to signal to current and prospective employees what the company values are in general and that it supports its workers. Examples of covered expenses that might have a large impact on employees are:
- Fitness classes and equipment
- Wellness retreats
- Non-medical marriage and family counseling
- Career or life coaching
- Financial planning and budgeting help
- Home office set up
- Professional development like conferences, seminars, or workshops
By meeting employees’ acute and day-to-day needs, companies get healthier workers. And healthier workers are more productive, more loyal and more engaged. They also tend to work better together.
Understanding employee demographics and lifestyles
In order for an LSA to have maximum impact and create the culture of wellness, empowerment and productivity a company desires, it must meet the needs of the individual employees. So before designing an LSA, companies should take a beat to understand their employees’ backgrounds, lifestyles, and stressors. There are several ways to do this.
- Survey employees. Ask what’s working well for them in regards to their physical, mental, and financial health and what they’re struggling with. Ask about their fears and stressors. Ask about their perceived holes in the current benefits package. Ask about their wellness and financial priorities for the coming year.
- Pull employee utilization data from your current benefits carrier(s). What are they using? What’s not being used? Are there any places you can cut and redirect that money to support the LSA?
- Conduct an online personal assessment to gauge where your employees are currently successful and where they can improve.
Customizing options to fit employee needs
The most important thing to understand when designing a benefits package is that your employees will have varying needs, especially if they are at different stages in life. Younger employees might value financial literacy support and professional development, while those further into their careers may value retirement planning. An LSA can have an open-ended design so that employees are supported and empowered to use the money how it will best benefit them.
Once you have the results of your employee research, synthesize the data to reflect overall themes and areas for impact. Prioritize employees’ needs by most acute (e.g. affecting the greatest percentage of people or deemed to be the most serious) to least acute. Determine the associated expenses that will have the greatest impact on these areas of struggle then compare these costs with your budget. You want to make sure you’re able to offer enough in each LSA to address the issues effectively.
The amount available to an employee through an LSA varies widely from company-to-company and depends on the intended expense. According to Mercer, the range for LSA allowances is $500 - $3,500. For example, an LSA intended to support physical fitness through gym memberships, fitness classes, and home gym equipment would typically have a lower limit than an LSA intended to support larger, one-time expenses.
If you don’t have a large budget with which to design an LSA plan, focus on where the account can be most impactful. If your budget grows in subsequent years, you can always add.
Integration with other benefits
An LSA is meant to supplement traditional benefits like health insurance and retirement savings accounts with additional financial support on everyday expenses. In order to create a comprehensive benefits package that meets all of your intended needs, you’ll want to:
- List out the needs you’re intending to meet through your benefits package and make sure they’re met through one of the plans you offer.
- Make sure you’re not double covering any one type of expense.
How to find a vendor
If you want employees to be highly engaged with the LSA, it must be easy (dare we say, enjoyable) to use. So when you’re looking for an LSA vendor, here are some questions you should ask to make sure their service will fit the bill.
- Do you offer a mobile app? Nowadays people want to be able to access everything on-the-go. Or from the couch, with their phone in their hand. A mobile app with expressly designed UI will make the LSA benefit easy to use and make it more likely that your employees will engage with it.
- How will employees use the LSA? Does the vendor offer a preloaded card for purchase at the point-of-sale or does the employee pay for the expense upfront and get reimbursed? For smaller expenses like gym memberships, getting reimbursed might not be much of a problem. But for larger expenses, employees might have a difficult time paying for the expenses upfront.
- What does employee onboarding look like? To increase your chances of high employee engagement, you want there to be as few barriers to entry as possible. Easy employee onboarding will also reduce the burden on your HR team.
- What are the accessibility features? Whether you have a team that speaks different languages or you have employees with disabilities, the plan should be accessible and functional for everyone.
Get started with Lively today
Lively offers best-in-class benefit accounts including LSAs, HSAs, FSAs, HRA, MTA, and COBRA and direct bill. We’ve designed our plans with the end-user at the top of mind, making it easy for employees to get started and understand and use their accounts. We take care of employee onboarding, ongoing education and provide responsive customer support. If you’re ready to level up your benefits package, reach out today.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.