It’s a win-win for employers and employees. Letting workers choose their own benefits – with a lifestyle spending account (LSA) – is a way of empowering them and retaining them. For firms, particularly smaller ones, it’s also a way they can compete when attracting new talent.
An LSA is an account funded exclusively by firms after taxes have been taken out. So, it’s taxable to workers but allows them to spend money on limited “lifestyle” expenses. Unlike HSAs or FSAs, they’re not tied to a firm’s group health plan, so they can be offered to part-time employees as well as full-time employees.
LSAs, which employers have offered for years, have gained renewed interest during the pandemic. They are a way for employers to assist employees with unexpected expenses. Firms may also want to consider them for hourly workers whose hours have been cut or for employees who have children and need child care assistance.
Firms define what expenses are allowable under an LSA. Most choose purchases focused on the physical, financial or emotional wellness of their employees, such as:
• health and wellness (gym memberships, personal care, yoga classes, etc.)
• continuous learning (online courses, audio books, etc.), and
• child care (babysitting, day care, etc.).
Firms choose LSA dollar amount
Firms give a yearly allowance to employees. Typically, it’s $500 to $1,000 or more. The amount can be deposited in full on Jan. 1 of each year or spread out monthly or quarterly. You can decide whether employees are able to roll over unused LSA funds each year.
Firms can work with a vendor to identify LSA categories and quickly implement a plan, since the post-tax offering eliminates any IRS regs. Most LSA vendors have apps and chat features that employees can use to easily check allowable expenses.