Stipend vs salary

Stipends and salaries are two common forms of compensation that often leave employers puzzled over which one best suits their needs and those of their employees. The distinction between the two is critical, as it impacts the workforce's financial well-being and reflects the company's ethos and commitment to its employees.

To explain the key differentiators between the two, we’ve looked into everything you need to know about stipends and salaries. Whether you're a seasoned HR professional or a burgeoning entrepreneur, understanding these nuances can make all the difference in crafting compensation packages that attract and retain top talent.

What is a stipend?

A stipend is a fixed sum of money provided by an employer to employees to cover various expenses related to their work, well-being, and professional development.

Stipends are distinct from salaries and wages and are often offered as part of a comprehensive benefits package to support employees in areas such as remote work, transportation, wellness, professional development, and other miscellaneous expenses incurred in the workplace or while fulfilling work-related responsibilities.

Learn more by reading our blog what is a stipend

Stipend vs salary: what are the main differences?

Stipends and salaries represent two distinct forms of financial compensation, with fundamentally different purposes and applications.

Unlike salaries, which serve as regular payments for work performed, stipends are specific allowances provided by employers to cover designated expenses such as transportation, wellness, or professional development. While both involve financial compensation, stipends are tailored to address particular needs or support employee initiatives beyond their standard wages.

1. Purpose and tax treatment

• Stipend: Stipends serve as non-salary payments for specific expenses like transportation, wellness, education, and more. Their tax treatment varies based on their purpose and nature, with some stipends being subject to taxation while others may be exempt or deductible.
• Salary: Salaries are regular payments for work performed, constituting a significant portion of employees' total compensation. They are subject to standard income tax withholding, social security contributions, and other applicable taxes.

2. Association with employment and determination

• Stipend: Stipends may or may not be directly tied to employee performance and can be provided as part of the compensation package or as additional benefits. Their amount and frequency are determined by employer policies, job roles, and specific expenses.
• Salary: Salaries are the primary form of compensation specified in formal employment contracts and agreements. While not directly linked to individual performance, they are determined based on job responsibilities, skills, experience, market rates, and negotiation.

3. Scope and flexibility

• Stipend: Stipends cover a wide range of expenses such as remote work, transportation, wellness, professional development, healthcare, and education. They offer flexibility in use, allowing employees to allocate funds according to their needs within designated categories.
• Salary: Salaries are not designated for specific expenses and provide employees with a fixed income stream, which they can use for various purposes, including living expenses, savings, investments, and discretionary spending.

4. Eligibility and variability

• Stipend: Eligibility for stipends may depend on factors like job role, tenure, performance, or participation in specific programs. Stipends may be provided as one-time payments or regularly.
• Salary: Employees typically receive salaries as long as they fulfill their job duties and remain employed by the organization, irrespective of other factors. Salaries are paid on a regular schedule, such as weekly, bi-weekly, or monthly. The frequency is generally decided in the initial contract agreement offered by the employer to the employee.

5. Usage restrictions and benefits

• Stipend: Stipends offer flexibility in usage but may come with guidelines or restrictions on eligible expenses, maximum reimbursement amounts, or reporting requirements. They provide benefits such as supporting employee well-being, professional growth, and work-related expenses.
• Salary: Salaries do not have usage restrictions, allowing employees to use funds as they see fit for living expenses and financial obligations. They serve as a consistent source of income for employees without limitations or reporting requirements.

To enhance your benefits offering with custom stipends and allowances<span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button"> schedule a consultation</span> with one of our experts and we’ll help you find a benefit plan that works for your employees.

Comparison table: stipend vs salary

Here is a quick overview of the major differences between stipends and salaries.

When should you offer stipends?

You should offer stipends when your organization wants to provide financial assistance or incentives for specific purposes beyond regular compensation, such as supporting employee well-being, professional growth, or work-related expenses, to enhance overall employee satisfaction and engagement.

Here are some situations in which offering stipends may be appropriate.

1. When you want to provide a competitive benefits package

Offering stipends can be an effective way to enhance your benefits package and differentiate your organization from competitors. Providing stipends for specific programs or activities demonstrates your commitment to supporting employees' professional growth and well-being.

2. When you need tax advantages

Stipends can offer tax benefits for both employers and employees in certain situations. By structuring stipends appropriately, your organization may be able to deduct stipend payments as business expenses, while employees can receive tax-free stipends such as flexible spending accounts (FSAs) to help cover certain expenses.

3. When you need a cost-effective benefits solution

Stipends can offset the cost of benefits per employee by a significant margin when compared to traditional compensation methods. For example, providing stipends for short-term projects or remote work arrangements can be more economical than hiring full-time employees or contractors

4. To hire and retain top talent

Offering stipends can be a strategic tool for attracting and retaining talent, especially in competitive industries or markets. Providing stipends for internships, professional development programs, or specialized training initiatives can make your organization more appealing to prospective candidates and increase employee loyalty.

5. To cultivate a strong company culture

Incorporating stipends into your compensation and benefits strategy can help reinforce your company culture and values. By investing in employees' growth and development through stipends for professional development or community engagement initiatives, you foster a culture of learning, collaboration, and social responsibility.

6. To elevate employee morale, engagement, and productivity

Offering stipends demonstrates that you value employees' contributions and support their personal and professional goals. Providing stipends for initiatives like innovation challenges, volunteer programs, or wellness activities can boost morale, foster a sense of belonging, and increase overall employee engagement.

7. To foster professional development

Stipends can be instrumental in encouraging employees to pursue continuous learning and skill development. Offering stipends for training programs, certifications, or conferences empower employees to expand their knowledge and expertise, increasing productivity and job satisfaction.

8. For employee wellness initiatives

Stipends can be allocated for wellness-related activities such as gym memberships, fitness classes, or mental health resources, promoting employee well-being and reducing stress levels, which ultimately boosts morale and productivity. You can even allow employees to choose their benefits by providing Lifestyle Spending Accounts (LSAs).

9. For employee recognition programs

Stipends can be allocated as rewards for outstanding performance, long-term service, or significant contributions to the organization, reinforcing a culture of recognition and appreciation among employees.

10. As incentives for innovation challenges

To stimulate creativity and problem-solving skills among employees, stipends can be offered as incentives for participation in innovation challenges, hackathons, or idea-generation contests, fostering a culture of innovation within the organization.

If you want to learn more about the advantages of workplace stipends, you can start by <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">scheduling a consultation</span> with one of our experts.

10 types of stipends

Stipends are very flexible as a compensation tool. They can be adjusted to fit a variety of purposes and goals, making them ideal for organizations with a diverse workforce.

1. Lifestyle spending accounts

Lifestyle Spending Accounts (LSAs) allocate a fixed amount of money to employees to spend on discretionary expenses based on their personal preferences and lifestyle needs. This can include funds for entertainment, hobbies, travel, dining out, or other non-essential expenses to enhance employees' quality of life outside of work.

2. Wellness stipends

Wellness stipends are provided to employees to support their physical and mental well-being. This can include funds for gym memberships, fitness classes, meditation apps, wellness retreats, or subscriptions to health-related services.

3. Healthcare stipends

Healthcare stipends are provided to employees to assist with medical expenses not covered by insurance. This can include reimbursement for deductibles, co-pays, prescription medications, vision care, dental treatments, or other out-of-pocket healthcare costs.

4. Child care assistance stipends

Child care assistance stipends provide employees with funds to cover childcare expenses while they are working. This can include reimbursement for daycare fees, babysitting services, after-school programs, or summer camps for employees with children.

5. Food and meal stipends

Food and meal stipends provide employees with funds to cover meal expenses during working hours. This can include prepaid cards for food delivery services, meal vouchers for on-site cafeterias, or reimbursement for business-related meals while traveling or attending meetings.

6. Transportation stipends

Transportation stipends are allocated to employees to cover commuting expenses, whether they use public transportation, drive, or bike to work. This can include reimbursement for transit passes, parking fees, fuel costs, or bike maintenance expenses.

7. Remote work allowance

Remote work allowances are stipends provided to employees to cover expenses associated with working from home. This can include reimbursement for home office equipment, internet bills, utilities, and other costs incurred while telecommuting.

8. Cell phone stipends

Cell phone stipends are provided to employees to cover the costs associated with using their personal mobile devices for work-related purposes. This can include subsidies for monthly phone bills, data plans, or cell phone reimbursement for business-related calls and texts.

9. Home office improvement stipends

Home office improvement stipends are allocated to employees to enhance their home workspace for improved productivity and comfort. This can include funds for ergonomic furniture, standing desks, lighting fixtures, noise-canceling headphones, or office decor.

10. Professional development allowance

Professional development allowances are stipends to support employees' ongoing learning and skill development. This can include funding for training courses, workshops, certifications, online learning platforms, or memberships to professional organizations.

Summary: Stipend types explained

Let’s summarize the stipend options we’ve examined in a table for easier reference.

How to offer stipends with Forma

To conclude, stipends are an essential component of a strategic approach to enhancing employee satisfaction, well-being, and overall productivity.

Stipends provide employees with additional financial support to cover specific expenses related to their work, personal development, and quality of life. By offering stipends for various purposes such as wellness, professional development, childcare, and remote work, organizations demonstrate their commitment to supporting employees' diverse needs and fostering a positive workplace culture.

Moreover, stipends can serve as valuable incentives for attracting and retaining top talent, as they showcase an organization's investment in the holistic well-being and growth of its workforce.

Offering custom stipends at scale can be a major challenge for organizations, but one that is easy to overcome with assistance from qualified benefits providers such as Forma. <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a consultation</span> with one of our experts today.