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Advantages of Flexible Benefits for Employers

Lauren Hargrave · February 20, 2024 · 9 min read

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Between remote work, the shifting power dynamics between employer and employees and the influx of new benefit types, the last few years might have felt to employers as if the ground was constantly moving beneath their feet. But luckily this new wave of employee benefits, i.e. flexible benefits, are specifically designed to be responsive to the changing needs of your team members.

Flexible benefits can be structured broadly or narrowly, depending on the need(s) they’re intended to meet, and can be redesigned on an annual basis based on budgets, employee feedback and benefit utilization. Their flexibility is what makes them perfectly tailored to the current moment and scalable to future needs. In this post, we’ll cover the advantages flexible benefits have for employers and why they should consider bolstering their current traditional benefits package with one or more of these plans.

What are flexible benefits?

Flexible benefits are benefit plans that can be modified by the employer to fit a specific need or range of needs, a certain budget and that are optional for employees to participate in. Typically flexible benefits offer an allowance to employees to spend on pre-approved expenses, or they provide for an account through which employees can save money and receive employer contributions that go toward payment of specified expenses (e.g. qualified medical expenses).

Flexible benefits typically offer the employee a lot of control over how they use their allotted allowance or savings, giving them the opportunity to use their benefits in a way that has the greatest positive impact on their lives. They also give the employer a cost-effective way of meeting the needs of a diverse employee base, leading to greater employee engagement and productivity, as well as better recruitment and retention and budget control.

How flexible benefits are an advantage for businesses

By offering flexible benefits, companies can improve their recruitment and retention efforts, increase employee engagement, increase diversity within their company, gain more financial control over their budgets and through it all improve innovation and other business outcomes. Here’s how.

1. They increase employee recruitment and retention

By offering flexible benefits, companies give employees the opportunity to customize their benefits package to fit their needs. This type of personalized compensation was found in a recent MetLife study to increase feelings of loyalty in employees toward their employer, which made turnover less likely. In fact, 70% of employees that were interviewed responded this way.

In addition, the fact that your benefits package can be adapted to meet employees’ unique needs is also a powerful recruitment tool. It signals to potential employees that you care about your workforce and that you trust them to make the best decisions for them and their families. This shows support and respect. Employees who feel supported and respected are more likely to feel satisfied at their jobs and want to work for you.

2. They increase employee engagement

Employee engagement is critical to an organization’s success. In fact, companies whose employees are highly engaged are 20% more profitable than their less engaged competitors, they are 21% more productive, they have 22% higher customer ratings, and experience 37% less absenteeism. 

How do you improve employee engagement? According to Custom Insight, employee engagement is high when employees feel the following:

  • Belonging

  • Autonomy at work

  • Accountability

  • They have good communication with their team and management

  • The receive recognition for their work

  • They have opportunity to advance and learn

It takes thoughtful, consistent practices and often structural change in order for these feelings to become embedded in the company culture. But flexible benefits can be a good start. These plans add to an inclusive environment because they can help make people from all backgrounds with the different challenges they face in their personal lives. 

Whether they need support with their financial health, they need help with family expansion or gender affirmation treatments, or they have multiple generations living in their household, there are flexible benefit plans that can help them. When you meet an employees’ specific need in an impactful way, they feel seen and as if they belong.

By giving employees control over the benefits they participate in, you give them autonomy to make the best decisions for their family. They are also accountable for managing their accounts and spending their allowances in the way that will benefit them the most. 

3. They increase diversity within the company

If you are a company that is focused on improving your Diversity, Equity and Inclusion (DEI) efforts or launching a new initiative, adding flexible benefit plans to your offerings can be a powerful tool. Since these plans are highly customizable, you can tailor them to meet the specific needs of underserved demographics in your workforce and signal to current and potential employees that you care about them. 

An example of how flexible benefits can bolster your DEI efforts is by offering an Lifestyle Spending Account (LSA) that reimburses for costs associated with family expansion. These include adoption fees, surrogacy costs, and more. Another example of a DEI-supportive plan would be to offer a Medical Travel Account (MTA) that allows employees to reimburse for the costs they incur traveling to seek medical treatment.  

4. The company gains more financial control

When a company tries to meet its employees’ needs through traditional benefits alone, it’s beholden to the market’s annual rate increases that have gone up 47% in the last 10 years. But if a company can get creative in its benefit offerings, pairing a High Deductible Health Plan (HDHP) and HSA combo with carefully crafted LSAs, an MTA and other flexible benefits, they can build a comprehensive benefits package that fits within their budget and meets the needs of their employees.

That’s because these flexible benefits can not only help the company save on premiums, but their tax liabilities as well. Here are some examples:

  • The HSA. Both employees and employers can contribute to an HSA, and all contributions are tax-free. Employee contributions are made before FICA taxes are assessed, thus lowering the employer’s FICA responsibility, and employer contributions can be written off as a business expense. The HDHP that accompanies the HSA typically has the lowest premiums of the health insurance plans, leading to further savings. There is no requirement that an employer contribute to their employees’ HSAs, but studies have found that employer-funded accounts tend to have higher participation and deposit rates than ones that are solely employee funded.

  • The MTA. Only employers can contribute to an MTA, but those contributions can be written off as a business expense. Employees must pay taxes on the amount they reimburse through this account. Employers can choose however much they want to contribute to an MTA and can choose what type of travel expenses are reimbursed for through the account, so they can keep the spending contained within their budget. By offering an MTA, employers can also help ensure their employees seek the medical treatment they need because they have a way to get there. This helps to ensure a healthier and more productive workforce, which adds to the company’s bottom line.

  • The LSA. Only employers can contribute to an LSA, but those contributions can be written off as a business expense as well. And like with the MTAs, employees pay income taxes on the amount they reimburse through the account. Employers can choose the types of expenses for which they want to reimburse and how much they want to deposit in each account. This way, they can use the LSA to fill gaps in care left by the health insurance plan, and allow the employees that need those gaps filled to participate, instead of purchasing a large, expensive, all-encompassing health insurance plan for everyone. They also enable employers to help employees pay for expenses not traditionally covered by insurance, such as fitness and wellness apps, financial planning, pet care, which can help boost employee retention and happiness.

Are there any challenges to offering flexible benefits?

Offering flexible benefits to your team does require some additional consideration and work for benefits leaders, but if you’re partnering with the right benefits administrator, they should be able to minimize its impact. Here are two factors to consider when adding flexible benefits to your total compensation packages:

  1. It might require additional time and resources to add new benefits to your compensation plans. This is where partnering with an administrator like Lively, can be a huge help. You want to look for a benefits administrator that does most of the heavy lifting when it comes to administrator and employee onboarding, system integration and communicating with your payroll provider.

  2. Offering new benefits that employees might not be familiar with requires a robust employee communication plan. Again, that’s where partnering with a benefits provider (like Lively) that can take care of some or most of the employee communication is beneficial. You want the provider to have ready-made resources that employees can access digitally on their own time, you want them to be available for questions during open enrollment and beyond, and you want them to provide ongoing communications so that employees are kept informed of how best to use their available benefits. 

Examples of flexible benefits

There are many types of flexible benefit providers and types of benefits available. Here are some areas of employees’ lives that these accounts can support:

  1. Family and childcare

  2. Medical travel

  3. Health expenses

  4. Financial planning

  5. Fitness and wellness

  6. Family expansion support

  7. Pet care 

  8. Commuting, office, and remote work

  9. Professional development

  10. Employee experiences and entertainment

How to get set up with flexible benefits

Once you’ve determined the types of flexible benefits you want to offer and your budget, reach out to your benefits broker to assess the options. You’ll want to look for a benefits administrator like Lively that can integrate seamlessly into your current systems so that administration is quick and easy. You’ll also want the administrator to integrate into your payroll system and help you track tax liabilities and other regulations.

Get started with Lively

Lively is your partner in offering the most robust and cost-effective benefits package for your company. We have a suite of flexible benefits plans that can be tailored to meet the needs of your employees and your budget, while providing best-in-class customer and plan participant support. Our goal is to help you reach your goals through employee benefits.  If you’re ready to level-up your benefits package with an administrator dedicated to customer and participant satisfaction, reach out today. We look forward to hearing from you.

Lauren Hargrave

Lauren Hargrave

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session can cure almost any bad mood. She’s also been writing her first novel for so long, her mom doesn’t ask about it anymore.

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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.



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