Every HR professional knows that when you decide on a new initiative, it can impact many of your people’s lives in a big way. That sentiment is especially true with employee stipends because they deliver immense value to their whole lives. That’s what makes them such a desirable lifestyle perk to offer. But as with anything, there can be a ‘wrong’ way to do things.

At Compt, we work with companies of various sizes and stipend programs, and our goal is to help you get stipends right from the start, and that means learning from the most common employee stipend mistakes we’ve seen (so you don’t have to make them).

Mistake #1: Putting stipend funds into employees’ paychecks

It can be tempting to drop the money into employees’ paychecks because it’s so easy. However, it’s worth considering whether ease is actually worth what you’re giving up in terms of benefits.

Below we cover the several reasons that putting the funds into employees’ paychecks is a big no-no:

First, it’s easy for employees to forget the funds are there.

When was the last time you looked at your pay stub?

Since they’re digital, people don’t look at them like they used to which puts your benefit on the mental back-burner.

Rolling out stipends aims to support your people and prioritize their whole selves. The psychological reminder of these stipends disappears when money is dropped into a paycheck.

Secondly, there could be misalignment with the stipend’s goal.

Many of our Compt customers want to ensure that their health and wellness stipend is spent on health and wellness-related items, the same as commuter, meal, or cellphone stipends.

Because it’s in their paychecks, there’s no insight on what people are spending their funds on, leaving a lot of room for questions as to what people are spending their funds on.

You also lack visibility and tracking of how people engage with the funds.

When you know what perks or vendors are most significant for your people at any moment, you can proactively plan new initiatives that will resonate most with your people. By not using software to manage, you’re missing out on an ample data opportunity.

And it’s also impossible to report back to your executive team what people care about most, and the beautiful ways you’re supporting your people’s lives.

And lastly, you might be spending more money than you need to.

By dropping them in some or all of your peoples’ paychecks, the money can be forgotten, seem like it’s a regular part of their pay, or be spent in other ways it isn’t intended. When you set up a stipend through a stipend reimbursement software (like Compt!) your people proactively spend their money, ensuring each dollar is spent wisely.

We recommend avoiding adding stipend funds to paychecks if you don’t want your people to forget it exists, misalign with its goal, overspend, or if you’d like engagement and spending data.

Mistake #2: Using a marketplace or vendor-only platform

Vendor-only platforms sound good in theory because you can “set-it and forget-it” but that isn’t the case, and your employees are becoming more aware of how marketplaces are limiting their growth.

They are limiting your people.

Employees can only spend their funds on the vendors that someone else has pre-selected and opted into. The result is a limiting catalog of potential vendors to add for your employees’ benefit that someone needs to keep updating continually.

And because you’re selecting from pre-selected vendors, your employees miss out on significant opportunities to support their local businesses from their favorite yoga studio, local ice cream shop, or select independent bookstore.

A G2 review from a company that offers a vendor-only option highlights this concern:

“It’s a little bit more difficult to add some local restaurants in our area, and we’re a smaller area, so that doesn’t help.”

And another user said:

“Lack of flexibility for local businesses.”

So if there’s one thing they really want, it might not be there.

Lastly, a good user experience is essential to making this work well. With hundreds of thousands of potential vendors to buy from, what results is a platform akin to the virtual catalog malls that credit card companies use for points that never seem to have the products you really want.

Mistake 3: Offering debit card only options

The cool factor for carrying a company’s pre-funded debit card is undeniable. Gen Z loves the idea of having a card that shows status and significance to their family and friends.

However, there are several situations in which debit cards might hinder your employees’ perks and add more administrative work.

They’re not for everyone.

As an elder-millennial, I understand the cool factor, but I prefer using my credit cards to earn 2x or 3x points on my purchases. This next point is a small: I don’t want another credit card to carry around.

How many people appreciate a card’s coolness over the functionality and benefits of using their cards for points, savings, and ease?

They complicate spending.

Here’s another G2 review from a user from an employee perks software company that uses the card method.

“We do $50 per month per person, and I always end up with about $6 left, and I can never find anything to buy for those prices.”

When people have a set limit on their cards, finding a vendor to purchase something to make the most of their last few dollars can be challenging. If the vendor you select uses the use-it or lose-it model for funds, this can be frustrating for your people. Every month, people will see the few dollars left in their accounts that they can’t access, making the loss of their funds more prevalent than the gain.

Here’s another G2 review from a user on this topic:

 “I wish there was an app so that when I am in a restaurant and I wonder “Is this place on my card?” I can check quickly instead of having to type my login info into the mobile site every time and then find the catalog and search for the restaurant. This process takes more than a couple minutes and usually, I don’t have enough time before I order.”

Not only do cards have limiting options for your people to spend, but it can also take a lot of time even to surface the vendors (in the case above, mealtime away from family).

If you’d like an in-depth review of debit card perks, we cover them in more detail here.

Mistake #4: Using business expense software for personal expenses

Software such as Expensify and Concur are business expense platforms, and they do what they’re designed to do beautifully.

However, lifestyle benefits and employee stipends are not business expenses.

A business expense is when a business pays employees to fly into office headquarters or pays for an employee to take a customer to lunch. There is software designed around streamlining this experience.

However, a personal expense is a perk or benefit expense that people receive directly benefits them, not the company. Examples include reimbursements for gym memberships, childcare subsidies, or experience stipends.

There are other significant differences between these two types of expenses which include:

• Business expenses are always untaxed, but personal expenses can be taxable or nontaxable. Business expense software doesn’t account for this.
• Expense software is usually more expensive per employee per month than employee stipend software and charges for each individual expense submitted.
• The user experience for expense software does not account for stipends. They don’t have the functionality to show balances, categories of spending covered, time frames for spending, or automated

Beyond the reasons above, we strongly urge against setting up employee stipends in Expensify or Concur because employees see expense platforms as money that is a business expense and is “owed to them.” The cognitive confusion created by using the same platform will detract from your generous benefits and lead to what Laszlo Bock refers to as “entitlement” issues.

Mistake #5: Using one-off point solutions that can only manage one type of stipend

In recent few years, several point solutions have emerged that manage only one type of stipend out of many potential stipend categories that both employers and employees would want: health and wellbeing, learning and development, equipment stipends, or travel stipends.

These can be excellent solutions if you know you only want one stipend forever, but the problem is that it’s tough to see into the future. Point-solution vendors prevent the further expansion of your stipend program.

At Compt, we’ve found that most companies that start with one type of stipend inevitably add another stipend or additional spending categories to a comprehensive, all-encompassing one they already offer.

When comparing perk approaches and vendors, potential expansion is essential to future-proofing your program.

Mistake #6: Managing them manually

If you think managing your current perks program is a lot of work, you’ll be shocked to see how much more administrative work it can add when managing perk stipends manually.

The reason is, when you’re managing them without software, you need a way to keep track of a lot of little details: every individual’s spend, balances, receipts (for tax purposes), and you’ll likely spend more time managing employees’ questions on balances, reimbursement timeframes, and what qualifies than you would with software.

You’ll also have to set up reminder emails or Slack notifications to promote awareness for your program benefits; otherwise, it will be another program that people won’t use.

Using employee stipend software to help you streamline your work will prevent you from managing questions daily around balance, what qualifies, when reimbursements will happen, taxes. It will also take the burden of sending personalized reminders to employees to keep benefits top-of-mind from your shoulders to theirs.

Compt is the #1 employee stipends platform that gives your people the freedom to choose the lifestyle perks that are best for them and their always evolving needs, even when remote. Interested in learning how Compt might benefit your company? Consult with our team or request a demo.