Employee stipends are a great way to incentivize employees and motivate them to work hard. These can be in the form of salary, stock options, or other types of compensation.
However, employers need to understand which employee stipend will work best for their company before instituting it as an incentive program. This article discusses the different types of employee stipends and how employers can implement them in their businesses.
Stipends are a sensible way to support employees, volunteers, trainees, and other team members, and they’re becoming a more popular alternative for firms that want to set aside a budget for team lunches or virtual happy hours, thanks to the increase of virtual teams. But what exactly are stipends? And why are they so important in shaping the culture of your company?
We’ve compiled all of the information you’ll need to start a stipend program in this post. You’ll learn what stipends are, why they work, and how to easily implement them at your organization. Everything you need to know about stipends is right here.
What Is A Stipend?
A stipend is paid to an individual in addition to their salary. Individuals may receive this if they work outside their normal job responsibilities or on a side project.
It can also serve as an incentive or reward, mainly if offered without other employment benefits such as health insurance or tax exemptions.
Stipends may include expenses to cover living necessities (while away from home during a business trip), educational costs, or even medical bills when an individual cannot afford them due to someone else’s negligence. As an alternative to cash, stipend arrangements may also incorporate “soft” incentives, such as stock options and awards.
Typically, stipendiary benefits are paid when someone works more hours during a week or month than they would have otherwise. Both part-time and full-time employees can benefit from these arrangements. However, specific stipend requirements may include providing documentation of the work performed and proof of accomplishment.
Common Uses Of Stipends
There are a variety of common uses for stipends, including:
- Programs for employee and family health care
- Courses, training, and learning budgets for professional development
- Business travel expenses, including lodging and meals
- Cell phone stipends for sales staff and employees on business trips
- Compensation for remote employees who are based abroad in the form of health insurance stipends
- Scholarships and living allowances for medical professionals like physicians, dentists, nurses, and veterinarians
- Cost of housing while students and researchers are in academic programs
Employers need to understand what qualifies as an allowable expense when implementing stipends into their compensation plan.
With that said, stipends should go towards business-related items that are a necessity to the company. They cannot be allocated towards personal expenses, such as life insurance or health club memberships, and should not replace an employee’s salary.
How To Implement An Employee Stipend Program
An employee stipend program is a type of compensation plan that pays employees in addition to their base pay. Stipends are typically non-taxable and can be used for anything the employer deems necessary, such as tuition reimbursement, car allowances, or travel expenses.
Employers may also give stipends to incentivize or reward employees for their performance. These benefits are typically paid out monthly but can vary depending on the employer’s discretion and stipend plan design. They may also be used in place of a salary increase or to supplement an employee’s existing income.
One way of implementing stipend programs is through pay stub generation. Many online platforms offer an automated pay stub generator that economizes the process for all types of business. With these generators, employers will have access to an easy and streamlined way that reduces their post-processing time workload with manual pay stubs.
What are the advantages of providing stipends?
Employee stipends help to improve the employee experience, making it easier to retain and attract staff and expand your benefits package. Employees are increasingly expecting their employers to give benefits tailored to their unique needs. Aside from income, employee perks are the most important factor in deciding whether or not to accept a job offer.
Employers and employees will have more control
Employers can set monthly allowance ceilings with stipends, providing them complete control over their benefits expenses. Furthermore, unlike granting a salary raise or sponsoring an account, reimbursing employees through stipends ensures that your benefit expenditures are used as planned. Employees also benefit from stipend freedom because they can choose where they spend their stipend allocation and are not bound to a predefined vendor list.
By administering your benefits through an employee stipend program, you’ll be able to maintain all of your perk benefits in one place, making it simple to issue various forms of reimbursements from the same location. No matter how many stipends an employer chooses to provide, they can all be managed in one location—no need to juggle multiple vendors. Furthermore, by utilizing a software solution, administration takes only a few minutes each month.
Customize your benefits in any way you want—choose who is eligible to participate in the benefit based on employee groups you create, define unique
Why Offer Stipend Programs
People participating in stipend programs tend to be better motivated and happier at work – meaning they’re less likely to quit their jobs or quit the company altogether. This is because stipends provide an excellent way to recognize employees’ hard work and accomplishments.
Employers can show how their employees’ hard work is appreciated and reduce burnout risk by providing stipends. In addition, these programs are more cost-effective than other bonuses, as stipends can be awarded to many employees instead of just a few supervisors or executives.
Are Employee Stipends Taxable?
Stipends are generally not considered taxable income. However, they might be subject to taxation if they’re for services rendered outside of the company, as you must report stipend on your tax return Form W-2 or Form 1099-MISC.
It all depends. Because the Internal Revenue Service (IRS) standards have some gray areas, employers must clarify what they consider a taxable benefit vs. a non-taxable benefit. For official advice, we always recommend dealing with your accounting team or tax professionals.
Some stipends are taxable income, therefore federal taxes may be due at the end of the year. This is determined by state taxes on fringe benefits and the purpose of the stipends.
Because stipend payments are not normally considered wages, tax withholding is not required. As a result, no Social Security or Medicare taxes are withheld. Even so, it’s a good idea for employees to keep track of their stipends if they’re taxable income.
It is often considerably easier to keep tax compliant while submitting your tax return if you use stipend management software. Otherwise, familiarize yourself with IRS Publication 15-B to understand how income tax and other tax issues may apply.
Stipends: Are they legal?
Stipends are allowed if you obey your jurisdiction’s tax requirements. While stipends were once used to avoid properly compensating individuals, they are now employed as a benefit alongside proper remuneration. Stipends should never be utilized to partially or completely exempt someone from a salaried position.
What Is The Difference Between An Honorarium And A Stipend?
Stipends usually provide compensation to employees for completed work in the form of monetary compensation or an allowance. On the other hand, honorariums serve as a token gesture for services rendered by someone who is not being compensated financially.
How Do You Ask For A Stipend?
Ask your boss to help you determine whether it is possible to make the stipend into an official part of your contract. If they say no, you could try negotiating a higher salary or better benefits instead.
Although it’s possible to make the stipend into an unofficial part of your contract, there may be legal repercussions if the company gets audited for not paying you the correct amount.
You’ll need evidence of being an employee who’s always doing overtime, so keep track of how much work you’re putting into the company. If you’re working from home, you can create your own invoices to submit to your employer.