Attracting and retaining workforce talent has become very difficult for many companies. Although the pandemic is easing, the labor market outlook continues to be problematic. Companies must set themselves apart from other employers that are drawing from the same labor pool. One way to do so is through your benefits package and including a Lifestyle Spending Account (LSA) may be just the edge you need.
What is an LSA?
An LSA is a post-tax benefit account funded solely by the employer. LSA funds can be used to pay or reimburse for almost any expense you want to authorize. Common LSA expense categories include physical health and fitness, mental and emotional health, and financial literacy.
LSAs can be offered to all classes of employees, including part-time ones, and can start at any point in the year that you set.
Employees pay taxes on funds received. Unused LSA funds revert to the sponsoring employer. Funds spent are a qualified business expense for you, just as any other company-underwritten benefit plan.
What expenses are eligible?
LSAs have been around for a while in other countries and are particularly popular in Canada, where they were initially referred to as “fitness benefit accounts.” Over time, especially with all the gym and fitness center closings during the pandemic, other expenses have been included in LSAs.
Employers now look beyond physical health to physical, mental, emotional, and financial well-being. Examples of expenses commonly eligible for LSAs include:
- Mental health – Pandemic-related isolation and other pressures have increased depression, anxiety, and stress rates. To help provide relief, you may want to include marital and family counseling, meditation apps, yoga classes, and similar activities and services as LSA-eligible expenses.
- Financial literacy – Pandemic job losses, rising inflation, and related economic concerns have deepened financial stress. LSAs can help provide access to personal financial management classes, budgeting assistance tools, and more.
- Recreational sports – Not everyone has returned to gyms and fitness facilities and many employers have broadened their physical activity support to include recreational sports like adult league fees, golf memberships, skiing passes, etc.
- Personal services – Remote working has made work-life balance harder to maintain. In response, you may want to add delivery services (meals, groceries, consumer goods), “spa days,” entertainment subscriptions (Netflix, HBO, etc.), and similar activities and services that promote personal time, self-care, and relaxation.
Are LSAs suitable for our company?
Because LSAs are not tax-advantaged benefits, there are few rules or restrictions. That makes them one of the most versatile and attractive benefit options. It also makes them ideal for diverse workforces. Employers can build a program that addresses various needs and interests in order to appeal to practically everyone, from young, entry-level workers just starting to older employees approaching retirement.
How can my company start an LSA?
If you are interested in sponsoring an LSA, here are some questions to consider:
- Scope – What is your budget per employee? What expense categories are you interested in making eligible for reimbursement?
- Contribution frequency – Do you want to fund the accounts on a monthly, quarterly, or annual basis?
- Reimbursement – Will you require manual claims with documentation before reimbursement? Or do you prefer a debit card, with receipts not needed until after a purchase is made?