Every year, people come to us at Compt and ask: “What is the difference between personalizing perks with debit cards vs. employee stipends (or reimbursements)?”

It’s an excellent question.

We understand the need to know the difference. The demand for personalized, flexible lifestyle benefits is high, with companies looking to consolidate multiple benefits vendors into one program and increase their focus on employee wellness. Also, we know from experience that rolling out any compensation-adjacent tool is a decision HR will live with for a long time. 

At Compt, we build software that helps companies set up, manage, and scale their lifestyle benefits stipends, but it’s possible a debit card model might be suited to your team’s preferences. This debit cards vs. reimbursements comparison will walk you through the pros, cons, and compliance considerations so you can decide what’s best for your team. 

Whichever approach you take, you’ll be offering much-needed support to your employees — and that’s something we’ll always root for!

Employee debit cards vs. reimbursements comparison: Pros and cons

Let’s start with everything you need to know about offering employee perks through a debit card model.

Pros of debit cards for employee perks

• No receipts required. Employees don’t need to submit receipts for point-of-sale purchases.
• There’s an inherent “cool factor.” A company card can feel like a status symbol that some employees enjoy showing off to peers, friends, and family.
• Employees have broad options for spending. If the card is truly open-ended, employees can spend at almost any restaurant, store, or service. But many programs impose vendor restrictions or rely on Visa acceptance, which can limit that flexibility.

Cons of debit cards for employee perks

• Cards require accounts to be prefunded, AKA frontloaded. It’s your job to pre-fund debit cards so your team has funds available when they go to make a purchase. Industry reviews show debit card utilization often falls well below 50%, all while you’re locking up your cash for 100% usage for that period. For example, a $100/month stipend for 1,000 employees ties up $1.2M annually, regardless of actual spend. This could cause some serious heartburn for Finance. 
• Cards are more costly to manage. Card costs are typically higher because you’re paying for the card hardware as well as the software. There are often fees, too.
• It’s difficult for employees to spend the amount given. Like with gift cards, debit card balances rarely zero out cleanly. Employees often end up with a few dollars they struggle to use and are left to hunt down a right-size purchase (or you experience breakage when they don’t use the benefit). 
• Choice is limited to the vendors on the platform. Because these models are vendor-based, like with a marketplace solution, your people are limited to the predetermined vendor list curated by the platform. This means employees likely can’t buy takeout at their favorite local restaurant or take the kids for a spur-of-the-moment ice-cream treat.
• All purchases are approved, regardless of what is purchased. Real-time card use limits preapproval. If alignment with policy/culture matters, that lack of control can be a compliance risk.
• Cards aren’t as scalable for larger organizations. Issuing, replacing, and managing cards gets harder as headcount grows.
• Card declines and transaction failures are real. Corporate debit cards can be declined for many reasons (e.g., insufficient funds, technical glitches, spending limits, MCC blocks, expired cards, fraud checks), causing embarrassing delays and disruption. Reimbursements avoid point-of-sale declines because employees purchase first, then submit their receipt.
• Cards are potentially noncompliant with IRS tax law. Under IRS rules (Publication 15-B), most debit card perks are taxable unless they fall into narrow “qualified fringe benefit” categories such as transit or education. Without receipts, employers can’t reliably track which purchases qualify, making it difficult to withhold and report correctly. That puts the burden back on Finance and HR to manually reconcile spending, increasing both risk and administrative work.

Here are some comments from employees of popular lifestyle benefits debit card vendors:

“The list of merchants is limited, and not all shops are included where I can use the card.”
— Benepass G2 review

“Finding the right category of items included in the perks takes time.”
— Forma G2 review

“They reject the card everywhere I tried using it.”
— Motivosity G2 review

Questions to ask when evaluating debit/credit card perk software options

The following are some other questions that have come up in conversation, but we’re not sure of the answers:

• What happens to the debit card and the remaining balance when an employee is terminated or leaves the company?
• What happens if they are purchasing something and do not have enough money on the card to cover it? 
• Do people really want another card in their wallet? Everyone from Uber to Apple now has credit cards available, and most people aren’t trying to add cards, but remove them.
• What happens if a debit card is lost/stolen and someone other than the employee spends the balance? The money is gone, but do employees get a new card with their remaining balance set up? How will a company account for the additional expenses?
• Are multiple stipends possible (e.g., one for health and wellness and continuous learning), and how does the debit card know which category to apply the spending to?
• If spending is permitted on preselected vendors, how is their approach different from using gift cards?
• How are taxable purchases identified and reported to payroll? 

Reimbursements (via stipends and LSAs): Pros and cons

Note: The information below is related to Lifestyle Spending Accounts using Compt’s reimbursement approach.

Our 2025 Midyear Benchmark Report (citing Sequoia research) shows LSA adoption continues to rise, with a year-over-year increase of 4% to 11% across employer sizes.

Pros of stipends or reimbursement for perks

Employees get unlimited options for spending. Because team members are buying what they want and submitting an expense, their options are unlimited. Spotify, daycare costs, student loan repayments, childcare or elder care costs, individual pet insurance providers — no matter what it is, they can buy what they need while spending in categories predefined by you.

You pay only for what gets used; the rest is kept in the business. Because Lifestyle Spending Accounts reimburse employees after the money is spent, there are no funds sitting in another bank account that you can’t access. Plus, because you only pay for what gets used (i.e., a use-it-or-lose-it approach), you’re always at or under the budget.

Here’s an example of what this looks like in practice:

You give your employees $300/quarter to spend on health and wellness. An employee spends $250 during the quarter and uploads their receipts. On the first day of the new quarter, they receive a new $300, but the balance remaining from the prior quarter is no longer available. As a company, this ensures you always know your maximum cash exposure and you keep all of those funds in your bank account until it is time to run payroll for your team. None of your funds are ever held by Compt. 

The reimbursement model has several benefits. There are reasons the reimbursement model is still the most popular method for benefits management: 

• It takes only a few minutes for employees.
• It gives HR real-time visibility to approve or reject. (And 99% of submissions on the Compt platform were approved in the first half of 2025.)
• It automates tax alignment via receipts and categorization.
• It enables true personalization — no vendor catalog required.

Related to the last item, not everyone uses the same gyms, TV streaming services, or mental health apps (there are more than 10,000 in the Apple store), and reimbursement allows people to pick the vendors they want and need without preapproval by some vendor marketplace.

Reporting from WorldatWork states only 35% of employers “help with immediate financial stresses like everyday expenses,” yet 91% of employees said having convenient, comprehensive modern benefits that cover these types of expenses (e.g., saving for retirement, the cost of everyday goods, the cost of housing, and making it paycheck to paycheck) makes them more likely to be satisfied with their employer.

Expenses can be reviewed before being approved. If a purchased perk does not fit within your lifestyle benefits spending guidelines, it can be rejected and no further work is required on your end. You don’t have this option if you offer a prefunded card. That means you’re sitting on a huge potential for misuse of funds across all of your employees using a card model, whether intentional or not!

Card declines will never happen. Because reimbursements occur after purchase, employees never encounter a declined transaction. Every submitted receipt can be approved or rejected by policy, so there are no merchant code restrictions or card declines to frustrate the team.

You can set up multiple stipends at once. Card programs typically funnel all spend into a single balance, making category-level control and reporting harder.

You can group employees for certain stipends. Compt supports member grouping (by location, role, tenure, awards, etc.), so you can automate stipends like “remote employee,” “new-hire tech,” or “President’s Club.”

Compt is 100% tax compliant. This is a big one that the employee card model overlooks. With lifestyle benefits stipends through Compt, team members select categories when uploading receipts. This makes each stipend 100% tax compliant on the back end when it’s time for your team to do the paperwork. With the Compt functionality, not only are your lifestyle benefits always 100% tax compliant, but you can decide who pays the taxes (e.g., the company grossing up vs. the employee).

The one con of stipends or reimbursement for perks

Uploading receipts is an extra step. While the reimbursement model is a pro, it does take each employee a few minutes to upload their receipts. Some companies would prefer to avoid asking their employees to do that, even though it’s what creates the audit trail that Finance needs.

Comparing card-based stipend platforms and reimbursement stipends: Key takeaways

As shown above, there are clear upsides to offering employee lifestyle benefits through the debit card model and through a stipend model. Both approaches help you better support your employees in a more personalized way than traditional perk programs.

However, it’s clear that choosing a debit card option (especially for the sole reason of avoiding receipts) typically costs you more in the end. These are the biggest drawbacks you’d face when opting for an employee debit card model for lifestyle benefits:

• No receipts = manual tax work for Finance and potential IRS issues.
• Lower visibility = higher risk of misuse.
• Vendor lists = limited choice, fewer local options.
• Operational overhead = hard to scale globally.

And to recap some of the benefits of a reimbursement model:

• Cash flow: Pay only for actual receipts; no frontloaded cash.
• Control and compliance: Receipts create a clear paper trail for approval and payroll tax handling.
• Employee experience: No card declines or MCC blocks; one extra step (receipt upload), but fewer surprises.

If you’re doing a debit cards vs. reimbursements comparison for next year’s budget, it’s clear reimbursements win on simplicity, compliance, and total cost.

Curious about how marketplace-based models stack up? We cover that in our blog post on best stipend software.

FAQs: Debit cards and reimbursements for perks

Considering a new approach to lifestyle benefits?

Whether it’s selecting a debit card/gift card option, vendor marketplace, discount platform, or Compt, our goal is to help you choose the best lifestyle benefits program for your situation. That’s why we’ve created this helpful worksheet.

Download the Perks Software Comparison Worksheet.

Compt is the #1 employee stipends platform that gives your people the freedom to choose the lifestyle benefits that are best for them and their ever-evolving needs.

Interested in exploring lifestyle benefits with Compt? Request a demo.

Editor’s note: Originally published in 2019, this post has been recently updated for clarity and relevance for our readers.