How to Win Internal Buy-In for an LSA Budget
Before implementing an LSA, internal stakeholders will want to ensure the program is worth it. Here's how to convince them.
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Employees today want more flexibility than ever, and lifestyle spending accounts (LSAs) are the ultimate tool for providing that. An LSA is a powerful way to improve retention and recruitment while boosting employee wellness, happiness, and engagement.
LSAs frequently boost engagement with benefits programs by offering employees more freedom to tailor their benefits to their personal preferences. Today, more candidates are evaluating potential employers for their flexible policies, wellness support, and inclusivity.
But LSA programs are still often met with resistance from senior leadership because they are a fairly new perk in the market. To receive support and budget buy-in, you’ll need to highlight the long-term benefits of an LSA. Below are a few steps your team can take to win buy-in for a new LSA program.
Not everyone may be familiar with LSA programs, and your team may need to highlight exactly what it is. A lifestyle spending account is a non-salaried allowance that can be used according to an employee’s personal preferences. Unlike flexible spending accounts (FSAs) and health savings accounts (HSAs), LSAs are fully funded by the employer and considered taxable income when spent.
Employers can outline a set of parameters for their lifestyle spending account, including what it’s called, spending categories, eligibility rules, and the contribution amount and cadence. Employers can even decide if funds expire at the end of each month, or if they will roll over so employees can purchase big-ticket items at the end of the year.
Once the team is clear on the definition, you’ll need to highlight the key benefits of LSA programs:
To combat the Great Resignation, many companies have reassessed their recruitment and retention strategies. Today, organizations must offer a culture built on employee engagement, flexibility, and work-life balance to increase retention rates. Making employees feel cared for increases retention rates and ensures that you’re attracting top talent in today’s competitive market.
To receive buy-in, highlight statistics that demonstrate how wellness support can improve recruitment. For example, Virgin HealthMiles/Workforce Magazine found that 87% of employees today consider health and wellness programs when choosing an employer. These numbers are even higher for Gen Z and Millennial respondents, with over 50% citing such benefits as a deciding factor.
Many employees also leave jobs for mental health reasons. Mind Share Partners’ 2021 Mental Health at Work Report found that 68% of Millennials (50% in 2019) and 81% of Gen Zers (75% in 2019) have left roles for mental health reasons. 91% of respondents believed that companies should support mental health, up from 86% in 2019.
Over the past few years, there has been a massive shift in how people think about work and its role in their lives. Make a case to senior leadership that emphasizes why mental health and wellness support is crucial to attracting and retaining top talent.
Some companies may have limits on how much remote work or schedule flexibility they can offer due to the nature of their business, especially in industries such as manufacturing, construction, healthcare, or education. Even when there are limits to workplace flexibility, you can still create a positive culture through easy-to-use and personalized benefits programs.
Building an LSA is ultimately about offering employees more choice and flexibility to increase the program’s usage and create employee goodwill. Pillars like food and groceries, wellness, mental health, and home office supplies can give your employees exactly what they need to streamline their workdays.
Unlike funds contributed to an HSA, employers only pay for the amount employees spend with an LSA. If employees choose not to spend their funds, employers keep that money. This can lead to cost savings at the end of the year while providing the employee 100% of the benefit. With their LSA program, Bright Health saved over $250,000 annually due to voluntary forfeiture. It’s a win-win for employers and employees alike.
You can also evaluate your current benefits and consider whether there are opportunities for cost savings by moving the budget into an LSA program. Many companies rely on multiple point solutions to provide a variety of benefits to their employees. The more that your company scales and grows your benefits program, the more expensive this becomes. Each vendor will have its own fees, so the costs can quickly add up. It’s also overwhelming and time-consuming for your admin team to manage a handful of point solutions. By moving point solutions into an LSA, you can save time and money while giving your employees more choice.
For example, website development platform Wix previously partnered with a single-vendor food delivery service to provide food benefits for their employees. By moving this budget into an LSA, they avoided fees for service, administration, and delivery that can reduce an actual food perk by as much as 20%. Utilization rates also shot up to over 90% because employees had more options and could spend the benefit not only on food delivery but also on groceries, restaurants, or meal box subscriptions.
Managing multiple point solutions is not only tough on your admins, it’s also challenging for your employees to navigate. The more point solutions you have, the more difficult it is for employees to understand what’s available, remember a handful of logins, and find what they need. LSA programs provide a better employee experience because they consolidate these solutions into one account.
LSAs are also a better way to align your benefits programs with your company’s DEI values. The flexibility of an LSA allows you to support a wider range of employee needs and adapt your benefits to a variety of geographic locations, family structures, or wellness preferences. For example, instead of tying your fitness benefit to a discounted gym membership, an LSA allows employees to purchase home workout equipment, boutique fitness classes, or running shoes. In the case of food benefits, an LSA may be more equitable than a Grubhub corporate account if you have employees working remotely from rural areas where they may not have as many options for food delivery as your employees who reside in urban centers.
As your company grows, you will need to support even more employee needs through your benefits programs. Because of its inherent flexibility, an LSA is uniquely scalable and can adapt to new needs.
With an LSA, it’s possible to expand your program to accommodate new spending categories at no extra cost. This gives your employees even more spending options and allows you to quickly change your program to adapt to current events, employee feedback, or company priorities. For example, nonprofit organization The Community Group added a new spending category to their LSA program to help employees pay for gas as prices rose due to inflation.
“We want to show that we are aware of current issues,” said Katie Graham, Chief Strategy Officer. “It’s easy to call Benepass and ask, ‘Can we make sure that is covered?’”
A recent Mercer Insights Survey found that 70% of companies are considering adding an LSA to their benefits package. Benchmarking your benefits against other organizations in your industry may highlight where you are falling short. Closely examining your benefits also allows you to determine the return on investment (ROI) of current benefits.
ROI is the biggest question leadership teams have about the benefits they offer. Assessing the ROI of your current programs helps you evaluate whether there is room for improvement. Are employees utilizing the benefits? What are the rates of participation? Some benefits, like a wellness program, may have specific goals in mind such as reducing health care premiums for the company. Understanding ROI can determine whether goals have been successful. It can also help HR teams build a budget for the following year.
Examining your costs may also encourage senior leadership to think about current programs differently, especially in a post-COVID and increasingly remote or hybrid work world. If your workforce is hybrid, it might be time to reevaluate expensive on-site perks like a cafeteria or gym.
Home office, food and grocery, and health and wellness LSA pillars may receive greater rates of participation since employees have more freedom over how they spend the funds. The same flexibility still allows on-site employees or hybrid employees to take advantage of perks closer to the office.
We created the 2023 Benepass Benefits Benchmarking Guide to help companies assess the competitiveness of their pre-tax and perks programs. The report provides insight into how companies of all sizes are designing programs for wellness, LSA, WFH, professional enrichment, meals, and more. Download the report to begin benchmarking your benefits today.
Even if net new budget is denied, you may still be able to receive buy-in by showing how you can redirect existing budget to an LSA program. A quick audit of all the different benefits your company offers will likely surface a few that could be moved into an LSA. Employee surveys and benchmarking reports can also highlight programs that are underutilized and need to be reassessed.
Below are a few areas that you can examine:
Many employers offer employee assistance programs (EAPs), which provide counseling and other services to help employees manage personal and professional stress. With these programs, companies hope to reduce burnout, improve retention, reduce absenteeism, and increase productivity.
These programs sound great in theory, but they are often underutilized and fail to move the needle on these goals. Studies have shown that EAP usage is often below 10%. This may be because they limit employees to certain providers and don’t give employees the feeling that they have freedom over how they access care.
By redirecting funds from an EAP to a flexible LSA program, you can empower your employees to take care of their health in the way that makes the most sense for them. Engagement rates should improve, meaning your company sees more of the benefits of a healthier workforce.
You can also find funds for an LSA by reallocating a portion of your company’s annual merit increase budget. Merit increases usually fall in the range of 3% to 5%, but moving even just 1% of this budget into an LSA program can be a smart strategy. Employees still receive a healthy salary boost, while your team has the budget to open a new benefit that positively impacts recruitment, retention, and employee engagement.
Going this route has the added benefit of providing employees dedicated funds to spend on their health and wellness. You can create spending categories for fitness, wellness, mental health, or spa and massage. This gives employees a guilt-free avenue for taking care of themselves in a way that 1% more on their paycheck would likely not.
On top of this, your company will experience cost savings through forfeiture. A 90% utilization rate is exceptional, but this means you still get to save 10% of the budget you redirected to an LSA while providing employees 100% of the benefit.
Many health insurance carriers provide companies with funds they can use to implement wellness initiatives. The idea is that these initiatives will encourage employees to adopt healthier lifestyles, resulting in fewer claims that the insurance company will have to pay out.
You can tap these funds to create a flexible LSA program that supports fitness, wellness, nutrition, and mental health. Carrier wellness funds expire at the end of the year, so companies must find a way to use them up or risk forfeiture. An LSA is beneficial because you can easily contribute all the funds to an LSA without exhausting your team’s resources in brainstorming, implementing, and managing multiple initiatives.
Disengaged employees cost U.S. organizations around $450-$550 billion each year. Companies with highly engaged employees are 21% more profitable and enjoy higher customer satisfaction, increased profitability, healthier workers, better retention, and fewer workplace accidents.
Employee engagement rates for LSAs are typically substantially higher than traditional single-merchant programs since employees can select the vendors that are most suitable to their unique location and needs. For example, at health insurance company Bright Health, 93% of employees participated in a new LSA program with an 85%+ employee satisfaction rate. Read more about Bright Health’s LSA program here.