Stipend vs. Salary: What’s the Difference and How to Offer Stipends

Browse through any selection of job ads, and you’ll notice the many ways that recruiters promote their compensation packages. Often, they’ll include a salary range and available health coverage and 401(k) plans. Increasingly, you’ll also come across “stipends,” a perk that employers hope will attract the best talent in the market. 

Our stipend vs. salary guide explains more about how these fit into your total rewards package, including what stipends are, how employees receive them, and how they might impact your taxable income. 

What is a stipend?

Companies offer stipends as a fixed sum that makes up a portion of their employees’ total compensation packages. The stipend is intended to cover specific employee expenses incurred during work or after hours in their personal lives. Employees typically receive their stipend at regular intervals, such as monthly or annually. 

Traditionally, stipends paid costs for interns, volunteers, or employees in training programs. For example, clergy members or academic researchers might have received a monthly stipend to cover living costs. But nowadays, stipends are a staple fringe benefit in the corporate world—employers offer them to enhance their compensation package, hoping that it attracts and retains top talent. Modern stipends cover a wide range of qualified expenses, such as housing, transportation, or professional development courses. 

Example: An employer might pay each remote employee $30 per month toward their home internet expenses, or offer $50 per month to all employees to spend on wellness. 

How are employee stipends different from a salary?

It’s easy to get confused about the differences between a stipend and a regular salary as they both form part of an employee’s compensation package. Yet, there are some key differences between these two types of compensation: 

Taxation

While employees must pay taxes on wages received for their work performed, stipends have different tax regulations: 

• Pre-tax stipends: In this case, the benefit is deducted from the employee’s compensation package before tax rules are applied. This increases the value of the stipend for the employee. 
• Working condition fringe benefits: Employers can offer certain non-taxable benefits if they use an accountable plan to highlight a clear business reason for the stipend.  
• Taxable benefits: The majority of stipends will fall into this category. The IRS requires such payments to be listed on salaried employees’ W-2 forms, and employers must withhold relevant state and federal payroll taxes accordingly. 

The Employer’s Tax Guide to Fringe Benefits 2024 is available from the IRS to help you understand how specific stipends are classified. 

Purpose 

Employees can spend their regular wages to cover living expenses such as rent, food, utilities, and childcare, or even to fund their personal stamp collection if that’s their preference. That's not the case with stipends which are allocated for a specific purpose, such as paying for transportation costs, meal allowances, or cell phone usage. Depending on the arrangement, some employers may require employees to provide evidence that they’re using their stipend appropriately, for example, by submitting receipts for gas expenses, food subscriptions, or cell phone plans. 

Fixed sum 

Companies pay stipends as a fixed amount, usually distributed company-wide or to specific teams or roles. For example, salespeople might receive a transportation stipend to cover their expenses on the road. This stipend is usually fixed for everyone who receives it, whereas in the case of someone’s salary, there’s often more wiggle room for negotiation. 

Example: Sales professional Eduardo might receive a higher annual salary than his colleague Craig due to longer tenure and hitting higher sales figures. But they both receive the same stipends in their compensation package. 

When to offer stipends

Are stipends the right choice for your business? Here are some common scenarios in which they could be a good fit: 

1. When you want to provide better benefits 

Modern employers must look beyond healthcare and retirement benefits to offer a more contemporary mix of the most important benefits to employees. Stipends are a flexible way to cover the diverse needs of your workforce, from support with housing and parenting to education and travel.  

As an idea of what other companies offer, the 2023 Benepass Benchmarking Guide reveals the following benefits trending with our internal customers. From most to least popular, these include the following: 

• Lifestyle spending accounts
• Fitness and wellness 
• Work from home
• Professional enrichment
• Food
• Phone and internet
• Parental support
• Travel

Download the complete guide to research benefits trends and benchmark your offerings against companies of similar size and industry. 

2. When you want to receive tax benefits 

Depending on the nature and structure of the stipend, some offer tax advantages for both employers and employees. For example, educational stipends can be tax-deductible and tax-free up to $5,250 per year per employee. 

3. When you need to attract and retain talent 

Salary, title, and growth potential aren’t the only ways to entice and hang onto top talent. Some workers will jump ship if another organization offers better perks, while job seekers can be attracted to a well-rounded benefits package. In fact, 21% of people who have switched industries to work in a new role cite “better benefits” as a top reason for the move. 

When organizations offer stipends, this can give them a competitive edge in the job market, especially if you can offer in-demand benefits like tech or home office stipends in a remote work era. Mercer’s Health and Benefits Strategies Report notes the following stipends are in demand in 2024: 

• Free or subsidized meals at work 
• Subsidized phone or internet for remote working 
• Stipend for home office setup and supplies 

4. When you need a more efficient and cost-effective approach 

Stipends can be cost-effective for companies, as you provide benefits upfront without the administrative cost and burden of using a reimbursement model. As stipends are typically fixed, they’re straightforward to manage and budget for compared to salary increases. 

Additionally, benefits platforms can save companies money through employee forfeiture. While some companies choose to tack stipends onto paychecks, others opt for benefits administration software like Benepass that allows employers to set expiration rules and keep unspent funds. For example, a company might choose to provide a monthly stipend that expires at the end of the month, leading to significant cost savings if even a small percentage of funds go unspent. 

5. When you want to enhance your company culture 

Since 2020, employee wellness has been at the heart of company culture, with 83% of Fortune 100 Best Companies employees reporting a psychologically and emotionally healthy workplace. Offering wellness, fitness, or community service stipends can reinforce a company’s culture and encourage employee participation in these areas.

6. When you want to boost employee morale and engagement 

Companies in the top quartile for engagement are 23% more profitable than those in the bottom quartile for engagement, according to Gallup. Stipends are an impactful way to boost engagement (and your bottom line) by offering financial assistance for multiple aspects of your employees’ personal or professional lives. Morale skyrockets within the employer-employee relationship when workers feel that the organization cares about their overall well-being.

7. When you want to encourage professional development 

Continuous learning in the workplace keeps employees’ skills up to date and marketable while strengthening a company’s talent pool. According to a 2023 Preply survey, 65% of workers agree that employee development is the top benefit a company can offer. Therefore, professional development stipends demonstrate an employer’s commitment to the growth and advancement of their employees, leading to a more skilled and competent workforce.

8 common types of stipends

Stipends are highly flexible, meaning you can design the perfect stipend type and tailor its frequency, eligibility, and amount to best suit your business. If you’re looking for some inspiration, here are eight common types of stipends used by businesses today: 

Commuter 

A commuter stipend is an employee’s allowance covering the costs of commuting to and from work. It can include monthly transit passes, parking fees, ride-sharing expenses, toll reimbursement, or bicycle-related expenses. For those who drive to work, employers may offer a gas stipend to support employees with the rising cost of gas. 

Work from home 

In the wake of the pandemic, remote work has become the norm for many companies. To provide financial support for employees in this new environment, employers may offer work from home stipends. Our 2023 Benepass Benefits Benchmarking Guide finds that 43% of our customers offer this stipend, worth an average annual value of $546. A typical WFH stipend will cover expenses related to a home office setup, such as desk chairs, monitors, printers, and other necessary equipment. It may also include reimbursement for home internet expenses. 

Travel 

Travel stipends differ from commuter stipends by supporting employees with the financial cost of taking a vacation rather than travel expenses associated with the journey to work. Although only 3% of Benepass customers offered this stipend (worth an average of $1,250 per year) in 2023, it’s worth adding to your benefits mix if you’d like to increase productivity by letting your employees charge their batteries. 

Wellness 

Wellness stipends are one of the most popular ways to support your employees with their mental and physical health. They can cover gym memberships, fitness classes, wellness retreats, meditation apps, counseling, or any other activity that promotes a healthy lifestyle. Employers usually offer these stipends to their employees to encourage overall well-being rather than as an alternative to traditional health insurance. 45% of Benepass customers offer a wellness stipend, with the average perk worth $155. 

Food 

Meal allowances complement wellness stipends by ensuring employees can access nutritious food when cost-of-living increases put healthy meals out of reach for many. Food stipends can fund meal delivery services, catered lunches at work, or a grocery allowance. They’re highly inclusive, ensuring that remote employees can take advantage of free food as easily as their in-office counterparts. 22% of Benepass customers offer a food stipend worth an average of $164. Read our customer story with Wix to see how the website development platform launched a biweekly food program with 100% engagement. 

Professional development 

Professional development stipends ensure that every employee in every rank or role, has the opportunity to grow and develop their skills. They cover costs related to attending conferences, seminars, workshops, or other professional development opportunities. These student aid costs differ from tuition reimbursement benefits, which typically refund employees for the cost of their education. 24% of Benepass customers offer professional enrichment stipends worth an average of $998 annually. 

Cell phone 

Employees who use their personal devices for work may be eligible for a cell phone stipend to cover the costs of their phone usage. 12% of Benepass customers offer this perk, paying an average of $41 per month for a phone-only plan or up to $102 per month as part of a cell and internet services bundle.

Lifestyle spending account

A lifestyle spending account (LSA) is a great stipend option for employers who want to provide more choice and flexibility to their employees. Companies can design the LSA to encompass any spending categories they like, for example, fitness, mental health, home office equipment, food, family support, or professional development. Employees then have the freedom to spend their benefits on items and services that fit their personal preferences and lifestyle needs. Our benchmarking guide found that 51% of Benepass customers offer LSAs worth an average of $169. The most common eligible spending categories are fitness (94%), mental health (84%), and nutrition (61%).

To learn more about the ins and outs of launching a flexible LSA program, download our ebook Launching a Competitive Lifestyle Spending Account Program: 7 Steps for Success, which digs into budget considerations, vendor checklists, LSA design tips, and more. 

How to offer stipends using Benepass

Offering stipends alongside a healthy salary can provide a total compensation package that's impossible for current and prospective employees to resist. There’s undoubtedly some red tape associated with stipends, as employers must understand the tax implications of offering specific benefits. For example, they may need to withhold income tax on some types of stipends and be able to communicate this appropriately to their employees. 

Whether you offer pre-tax, non-taxed, or taxable stipends, Benepass makes it easy to deliver enticing benefits for any purpose. Learn more about deploying stipends from our efficient and intuitive platform by booking a free Benepass demo today. Please feel free to contact sales@getbenepass.com with any questions.