Stipend vs. Reimbursement: Which is the Right Option for Your Workforce?

Stipends and reimbursement are two different methods employers use to support employees with costs related to their work and lifestyle. Whether paying for a remote workers’ broadband package or supporting your commuting employees with gas and parking costs, these benefits are an extra way to compensate your workforce for their hard work and dedication. 

How you fund these benefits is a top consideration because stipends and reimbursements tackle the payment process from different angles. One pays upfront before an employee goes out of pocket, and the other only delivers once the employee has already paid for the expense and wants their money back. 

This guide explores stipends vs. reimbursements in more detail. You’ll learn some examples of the benefits of each and the main differences between these benefits distribution models. 

What is a stipend?

A stipend is a fixed sum of money employers can pay their employees to support them with various financial costs related to work or their personal lives. Employees may receive their stipend allowance directly into their wages as part of the payroll process or deposited into a benefits administration platform like Benepass. Stipends are often paid on a regular basis, for example, an annual, quarterly, or monthly stipend.

Examples of stipends

Stipends allow employers to cover specific expenses their employees may incur. They’re a great way to offer support in a specific area, such as: 

• Cell phone and internet stipends: Covers device and monthly service costs to support employees who use their personal devices and broadband for work purposes. 
• Wellness stipends: Provides funding for wellness-related activities such as mental health services, relaxation sessions, or stress-relief programs.
• Fitness stipends: Supports employees by covering gym memberships or other wellness-related expenses.
• Work from home stipends: Provides financial assistance for the purchase of home office equipment, such as desks, chairs, and lighting, to help employees create an efficient workspace.
• Technology stipends: Covers costs for purchasing or upgrading devices, software, and other technology tools to enhance employees’ work efficiency.
• Family formation stipends: Supports employees with expenses related to family planning, fertility treatments, adoption, or surrogacy.
• Childcare and eldercare stipends: Provides financial support for employees to cover the cost of dependent care services.
• Professional development stipends: Allocates funds for employees to attend courses, conferences, or other professional development opportunities.
• Food or meal allowance stipends: Offers daily or monthly allowances to cover the cost of meals for employees working long hours or during business trips.
• Commuter stipends: Assists with travel costs for employees who need to commute to the office or other work locations.
• Gas stipends: Helps employees with the cost of fuel for commuting or work-related travel.
• Travel stipends: Offers financial assistance for employees’ personal travel and vacation expenses so they can rest and recharge. 
• Personal development stipends: Provides funds for employees to pursue hobbies, personal growth activities, or learning opportunities outside of work.

For further inspiration, the Benepass guide to employee stipends provides a list of ideas, tips, and best practices. 

Benefits of offering stipends to your employees

Stipends are an attractive way to distribute benefits, with the following gains for both employers and employees:  

Eliminates administrative burden

Stipends are designed with convenience in mind. Making a fixed, routine payment into an employee’s account every month reduces significant admin for your in-house benefits administration teams. Instead of the burden of expense management, which involves approving receipts before making the payment, stipends allow for ease of use and cost efficiency. 

Supports a distributed workforce

With the rise of remote working, employers must find a different way to support their distributed employees who don’t have access to the onsite corporate gym or enjoy catered office lunches. Stipends ensure you treat your employees equitably by providing funds they can customize to their individual needs. 

Improves your employer brand

Stipends are a huge selling point for job candidates and existing employees. Employers who publish their stipend details in job ads or on their company career pages will strengthen their employer brand. They’re putting their money where their mouth is in terms of employee support. 

Offers flexibility

Stipends embrace individuality by allowing your employees to spend their allowance on benefits that are meaningful to them. While stipends follow a certain theme, they also include plenty of space for flexibility. For example, workers might put their food allowance toward a monthly family meal in their local restaurant or their grocery bill from the local health food store. 

What is a reimbursement?

Reimbursement is another employee benefits model that allows workers to claim back their personal or business expenses. Employees incur an expense, pay for it out of pocket, and then submit a claim to their employer for the money spent. The company reimburses them by recompensing whatever they have spent.

But while employees receive their money back in the end (so long as the expense is approved), the reimbursement process can be lengthy and labor-intensive for your benefits teams. 

Examples of reimbursements

Employers may offer reimbursements to cover any type of expenses an employee incurs as part of their job responsibilities or personal life. Some examples include: 

• Health reimbursement arrangements: Covers out-of-pocket medical expenses, including insurance premiums, co-pays, and other healthcare-related costs. 
• Business travel reimbursements: Reimburses employees for travel expenses incurred on business trips, including transportation, lodging, and other trip-related costs.
• Meal reimbursements: Covers the cost of meals during business-related travel or meals provided to employees during work-related events.
• Mileage reimbursement: Compensates employees for the use of their personal vehicle for business purposes, covering fuel and vehicle maintenance costs.
• Home office reimbursement: Provides reimbursement for home office-related expenses such as office supplies, furniture, or technology used for remote work.
• Tuition reimbursement: Covers the cost of tuition for employees pursuing further education, such as degrees or certification programs related to their jobs.
• Uniform reimbursement: Reimburses employees for the cost of purchasing and maintaining uniforms required for their job duties.

Benefits of offering reimbursements to your employees

Reimbursements can also provide advantages for employees: 

Ensures accountability

Reimbursements provide a clear record of spending since employees must go through the expense claim process to get their money back. This transparency makes it easier for employers to manage costs and ensure the allowance is used as intended. 

Supports tax compliance

Depending on the type of reimbursement, some are not subject to income or payroll taxes when structured under an accountable plan. This allows both employers and employees to avoid unnecessary tax burdens. 

Encourages thoughtful spending

Employees are more likely to make mindful purchases when they know their receipts will be analyzed by an in-house expenses team. This makes it easier for employers to keep their expenses in line with the company’s overarching benefits strategy. 

Promotes equity in access

Like stipends, reimbursement programs ensure all employees, whether remote or in-office, are reimbursed for necessary work-related expenses, promoting fairness and inclusion across the workforce.

What are the key differences between stipends and reimbursements?

Employee stipends and reimbursements both allow employers to bolster their compensation packages by offering fringe benefits that support their workforce in a range of meaningful ways. But there are clear differences between stipends and reimbursements, as follows: 

Use and purpose 

Stipends are designed to cover predictable expenses, such as fitness or commuting costs. Employees aren’t usually expected to account for how they spend their stipend. 

Reimbursements, on the other hand, can cover a wider range of business-related expenses and are often used for one-off costs or unexpected items. Receipts are a significant part of the reimbursement process, as employers need to see proof of purchase before paying back the employee. 

Timing 

Employees receive their stipends upfront in their regular wages, so the money is there, ready and waiting before they need to pay their regular cell phone or gym membership payment. Essentially, employees never go out of pocket. 

Reimbursements are a lengthier option for employees. The exact time they’ll wait to receive their reimbursement depends on multiple factors, including:

• How quick the employee is to start the reimbursement process (some may put it off or lose the receipts necessary to file) 
• How busy the admin team is with other expense claims 
• The specific internal process, which may include an initial submission and review, secondary and final approvals, and the reimbursement processing time

During this time, which could be several days or weeks, the employee will be out of pocket and may even need to pay interest on any credit they’ve used to make the initial purchase. 

Amount 

Stipends are a fixed sum of money employees can spend flexibly according to their needs. For example, our benefits benchmarking report reveals that 45% of Benepass customers offer an average wellness stipend of $151 per month. 

Reimbursements will process expense claims of varying amounts, usually up to a maximum limit. For example, an employer may allow their employees to claim back home office setup expenses of up to $500. Employees will submit their receipts and invoices for office supplies, lighting, furniture, and technical equipment. If they spend $491, they’ll be reimbursed for exactly $491 and won’t receive the $9 in change. If they spend $525, they’ll only receive $500 back as an expense and must pay the remaining $25 out of their own pocket. 

Tax implications and financial impact 

Reimbursements and stipends have different tax implications for employers and employees. Understanding the tax nuances between stipends and reimbursements can help employers structure their employee benefits programs efficiently, minimizing unnecessary tax costs for both parties.

Stipends are generally considered taxable income unless they fall under specific exemptions outlined by the Internal Revenue Service (IRS) in Publication 15-B. According to the IRS, U.S. citizens or resident aliens will need to complete either a W-9 or W-2 form to include these stipend amounts. For non-resident aliens, a W-8BEN form is required.

Reimbursements may not be subject to taxes if they meet the criteria of an accountable plan. Under an accountable plan, reimbursements are exempt from income taxes, Social Security, and Medicare taxes. However, if the expense reimbursement is under a non-accountable plan—where receipts or proof of expense are not required—it may be taxable, and both the employee and employer could face additional tax burdens. 

Stipends vs. reimbursements: When to choose each

Choosing between a reimbursement and stipend program boils down to which makes the most sense to your business and your employees. There’s no right or wrong answer, but the following scenarios may help you decide: 

Choose stipends if: 

• You want to provide flexible, predictable financial support. Stipends help employees manage recurring expenses like wellness programs or commuting costs, giving them the freedom to spend the funds in ways that best suit their needs.
• You have a distributed or remote workforce. Stipends ensure that remote or hybrid employees receive equitable support for work-related and personal expenses, even if they lack access to in-office perks.
• You want to streamline administration. With no need for receipt tracking or approval processes, stipends simplify payroll and reduce the administrative burden for HR teams.
• You aim to improve employee satisfaction and well-being. Offering stipends for wellness, personal development, or family support demonstrates a genuine commitment to your employee’' health and work-life balance.
• You want to attract and retain top talent. Stipends enhance your benefits package and differentiate your company in a competitive job market, making it more appealing to potential hires.
• You need a scalable, low-cost solution. Stipends are easy to implement and scale, providing a cost-effective way to support a diverse range of employees without complex approval workflows.

Choose reimbursements if: 

• You need to ensure accountability for specific expenses. Reimbursements require employees to provide receipts, ensuring funds are used for the intended business purposes.
• You want to control spending on one-time or unpredictable costs. Reimbursements are ideal for expenses that vary or are infrequent, like business travel or home office equipment, offering precise expense management.
• You prefer to avoid providing upfront funds. With reimbursements, employees pay out-of-pocket first, ensuring expenses are only covered after they’ve been validated.
• You have employees with specific business expenses. Reimbursements are best suited for covering targeted employee expenses like travel or educational costs, ensuring funds are spent only on essential work-related items.
• You need to manage tax compliance more closely. For certain expenses, reimbursements under an accountable plan can provide income and payroll tax advantages, but they require more oversight compared to stipends. It’s worth consulting a tax professional to ensure you remain compliant. 

What is a stipend reimbursement?

While traditional stipends and reimbursements are different ways to pay employees’ benefits, they’re not always mutually exclusive. A stipend reimbursement is a hybrid approach that combines the flexibility of stipends with the accountability of reimbursements. Using a card-first approach like Benepass with built-in spending controls, employees can make eligible purchases using their stipend funds so they never go out of pocket. Employers can then require employees to submit receipts after spending to ensure compliance with their programs if they desire. This approach offers a streamlined and transparent process while still empowering employees to manage their expenses efficiently. 

Choose stipends and reimbursements from Benepass

Benepass is a people-focused benefits administration platform that uses the Benepass Visa card to empower employees to choose meaningful benefits. Here’s how it works: 

• Employers fund the Benepass Visa card, where they can allocate funds for specific benefits (e.g., wellness, commuting, fitness) as part of a Lifestyle Spending Account.
• Employees use their Benepass card like a regular credit or debit card—they don’t need to keep receipts unless their employer requires them to, as everything is tracked online in real-time. Employees can spend with their physical card or through their digital wallet. 
• Employees never need to go out of pocket so long as they stay within the limits of their Benepass account. 
• Employers are relieved of the administrative burden of processing expense claims. 
• Employers can generate reports delivering insights on how employees use their stipend allowances. 

Ready to overhaul your resource-intensive reimbursement operations? Book a free Benepass demo today or contact sales@getbenepass.com to connect with a benefits specialist.