If you’re thinking of offering employees some extra cash for things like a cell phone allowance or gym membership, you’ve probably considered just adding that money onto their paycheck.

While adding a few extra dollars to an employee’s paycheck may seem like a straightforward and simple way to enhance their total compensation, it’s not as effective as offering lifestyle benefits in the form of lifestyle benefits like stipends or Lifestyle Spending Accounts.

Lifestyle benefits are a simple yet powerful way to make employees feel valued-and the good news is: you don’t need an enormous budget to drive an impact.

Of course, we have to say that this assumes you’re paying employees their market rate. If your employee pay is below market rate, then there are several ways you can start to bridge the gap!

There are several reasons why providing lifestyle benefits through stipends represents a more strategic approach to employee benefits.

Let’s go over a few of them:

The Consequences of Adding More Money to a Paycheck

First things first. When you just add money to a paycheck, it certainly offers a level of administrative convenience for HR and finance. That’s because the amount is predictable and the process is automated. We understand why this is the first reaction, but it still falls short in a few different ways:

Tax Inefficiencies

Many benefits, like commuter allowances or cell phone reimbursements, can be offered tax-free through a Lifestyle Spending Account (LSA), saving both the company and employees money. Paycheck additions are subject to payroll taxes, resulting in overpayment for all parties involved.

Reduced Recognition

Here’s the thing: Paycheck additions often go unnoticed. With traditional paper paystubs becoming obsolete, employees may not even remember receiving the offered benefit, which cancels out any perceived value and intended purpose. If you received an extra $5 or $10 in your paycheck, would you notice? Likely not. This is akin to lighting your budget on fire, because no one will pay attention.

Missed Opportunities to Promote Specific Values

A well-rounded benefits program can help attract talent and encourage retention. That’s something that’s much harder to do with just a bit of extra cash.

Forgettable Benefits

In a recent conversation with Compt’s Head of Customer Success, Mary Migiano, she had this to say about the paycheck approach, “Our customers often share that they choose Compt because they know (and have seen sometimes first-hand) that an extra $50 in a paycheck disappears, but a $50 stipend becomes a story with real, tangible impact.”

When stipends are added to paychecks they feel more like a small raise, than an actual benefit. And as a result, they up getting lost in the shuffle of life’s expenses and are forgotten about.

What Reimbursement Stipends Offer that Paychecks Can’t

Employee stipend programs address the shortcomings mentioned above and unlock additional advantages:

Memorable Benefits

By offering stipends through a reimbursement model, employees login to their accounts and see how much extra money you’ve given to them and the various ways they can spend it. With reimbursements, employees are able to spend on whatever vendors (big box to local), and in their moment of need which leads to stories rich of impact.

Speaking of real stories of impact, below are a few quotes from real Compt users (anonymized) about how their companies stipends are impacting their lives:

• “My company’s Compt stipend helps me to make sure I always have time and money put aside for my health and wellbeing, regardless of pay”
• “I actually bought the dishwasher, and oven. I’ve been without an oven, & stove top for 4 years, and a dishwasher for 8 years.”
• “They help offset cost for unexpected needs and offer me the opportunity to enjoy life with our the financial worry.”
• “They’ve allowed me to feel less guilt about paying for wellness and things that are a necessary part of my life.”
• “The Benefits impacted me in a positive way by given me something to look forward to, like a present to unwrap.”
• “I buy stuff for myself that I usually wouldn’t splurge on.”
• “While it seems like such an easy benefit to implement it has a huge impact. Thanks.”
• “I’ve dreamed of having matching family PJs for Christmas, and I was able to make it a reality for our whole family!”
• “Definitely a treat to myself, and hopefully even more appreciated by my future-self. Anti-Aging Overnight Cream. Let’s hope given the price!”
• “Yes, it allows me to rotate my running shoes every three months to keep running”
• “The Compt benefit such a pleasant way of covering unplanned expenses or treating myself!”
• “Because of the gym benefit I was able to join a Pilates gym. Now I exercise every day. I has improved my life.”
• “Compt has been awesome in providing me with a quarterly treat to increase my productivity or help me feel better.”
• “Compt helped my wife and I update our home for our family’s well being.”
• “Love being able to have the benefit to be rewarded for something I like and brings me happiness.”
• “The Compt benefits make feel more free to book a hotel that’s just a little nicer than usual once in a while :)”

None of these are things that people say when they’re given an extra $50 in their monthly paycheck.

Cultural Reinforcement of Company Values and Desireable Outcomes

Leveraging lifestyle benefits empowers you to tailor your focus to specific categories that align with your company values.

For example, many of our customers offer a health and wellness stipend which employees can use to spend on things like gym memberships, massages, therapy, and more.

This can feed into company values like here at Compt where we have a value of ‘Balance and Belonging,’ so the stipend promotes anything that brings our employees balance!

With Compt, you can design your own custom program by choosing any combination of our 27 categories:

Higher Level of Personalization

Unlike vendor-specific or marketplace solutions, which offer limited options, stipends can be spent with any vendor (yes, any). This means that you can spend stipends on tried and true retailers or at the mom and pop shop in your hometown. The choice is theirs. It’s key to personalizing the employee experience.

Let’s say you want to offer a health and wellness benefit. While some employees may prefer a particular local gym, others may not prioritize gym attendance at all, opting instead to invest in running shoes or other fitness equipment.

By offering a stipend, you empower each employee to make choices that best suit their individual preferences and wellness goals, with minimal administrative burden on your end.

This approach not only supports diverse lifestyles within your team but also promotes a sense of autonomy and ownership over personal wellbeing.

Increased Perceived Value

As outlined in Laszlo Bock’s “Work Rules,” people place greater value on benefits they can actively use and perceive as relevant to their lives.

Receiving contributions towards a specific service, like babysitting or a food delivery subscription, holds more weight than a generic cash addition.

The data backs us up: In our 2024 Lifestyle Benefits Benchmarking Report, we found that 84% of Compt users surveyed believe that stipends offered through Compt are a valuable benefit that makes them feel appreciated.

Perceived value: How it works

Think about it — would you tell your friends that your employer added an extra $50 to your paycheck? Probably not.

But saying that they cover a portion of your family’s groceries is a benefit worth mentioning and reinforces the idea that your company cares about your wellbeing outside of work.

Times have changed and employee expectations around benefits and compensation have changed, too. Your health insurance and 401k are simply not enough to ensure your talent is feeling fully supported, and lifestyle benefits administered through stipends are the simplest, most effective way to address this gap.

By utilizing an employee stipend platform, companies can offer valuable, tax-efficient benefits and foster stronger employee engagement.

Choose reimbursement stipends over extra money in a paycheck to delight your employees

Thinking about offering your team lifestyle benefits? Request a demo to learn how Compt can help you create a stipend program that boosts engagement and retention.