What is a Lifestyle Spending Account (LSA)? (updated for 2024)

A Lifestyle Spending Account (LSA) is an employer-sponsored benefit that allows employees to set aside money for discretionary spending. LSAs are customizable and can be used for a variety of expenses such as child-care, wellness programs, transportation, home office equipment, and much more.

How does an LSA work?

LSA funds are set up through employer-funded accounts.  The parameters for how the money can be spent are determined by the employer as well.

LSAs have been proven to help boost employee engagement and loyalty, as well as give employees the freedom of choice to select benefits that best suit their unique lifestyles. 

The different offerings under an LSA can be tailored to promote work-life balance by including options that enhance productivity, promote downtime, and encourage relaxation.

LSAs help employers attract and retain top talent while also providing employees with more control over their benefits package. Let’s take a closer look at how LSAs work and the value they bring to an employer’s benefits offering. 

What can an LSA be used for? 

LSAs are typically used for wellness expenses not covered by existing traditional benefits, such as fitness classes, gym memberships, work-from-home expenses, childcare services, and more.

They can also be used to cover other lifestyle-related items such as online streaming services, food delivery programs, pet expenses, education, home office equipment, or other related items that promote both physical health and mental health.

Your Lifestyle Spending Account's eligible expenses and parameters will depend on the specific plan offered by the employer. See the latest LSA trends and categories employers are selecting in the 2024 Lifestyle Spending Account benchmark report. 

The options are limitless and are chosen based on where companies want to focus their benefits investment. LSAs provide advantages for employers and employees by empowering employees to discover and choose meaningful benefits that fit their own individual needs.

Employers gain from a flexible benefits strategy with endless options for customization, an approach for inflation-proof benefits, and the ability to respond to the changing needs of their employees. LSAs are becoming increasingly popular as more employers recognize the benefits of this type of account. For example, In 2022, 9% of employers provided LSAs, and it is projected that by 2025, 43% of companies will offer them.

Want to bring an LSA offering for your workforce? <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 find the right approach for you.

"What is a Lifestyle Spending Account (LSA)?"

A Lifestyle Spending Account (LSA) is an employer-sponsored benefit that allows employers to set aside money for employees to use discretionary funds. LSAs are customizable and can be used for a variety of expenses such as fitness and wellness programs, home office equipment, professional development, commuter assistance, caregiving, and much more.

Megan Burns, Benefits Strategy & Solutions at Forma

The benefits of offering an LSA  

1. They help you stand out from competitors

Companies that offer an LSA can differentiate their employee benefits offering from competitors. An LSA allows employers to provide meaningful benefits that directly address the needs of their employees in areas of wellness and lifestyle outside of traditional health insurance coverage.

LSA benefits ultimately lead to increased employee satisfaction which helps create a better work environment for everyone involved. Lifestyle benefits can give you the edge over a competitor when prospective candidates look at your benefits plans side-by-side.  

2. They help you attract and retain top talent

When it comes to your recruitment and retention efforts, offering an LSA helps position your organization as one that cares about its people.

A Glassdoor survey found that 94% of employees want benefits that positively impact their overall well-being. Furthermore, there’s been a notable increase in perceived employer recognition of benefits' importance for overall well-being, rising 4% since 2023 to 65%.

There is a growing demand for flexible employee benefits in the workforce. 8% of employers said they introduced LSAs in 2023, and another 35% said they would consider doing so in 2024. Therefore, this kind of benefits package is increasingly expected by high performers.

As a result, offering an LSA and other fringe benefits will help you retain and attract top talent in your industry.

3. They are inclusive

As the workforce becomes increasingly diverse and spread out, it is crucial to incorporate personalization and flexibility into benefits programs.

This approach addresses both the workforce's general needs while catering to every individual's own professional, physical, and mental health needs.

10 reasons companies need to switch to Lifestyle Spending Account benefits

Lifestyle Spending Accounts foster workforce well-being, attract top talent, and provide inclusive benefits. Companies reduce overall costs and can quickly respond to world events. Benefits professionals are spared the administrative agony of point-solutions. But most importantly, all employees can direct benefit allowances toward what matters most to their unique situation.

See below for the top ten reasons companies should switch to Lifestyle Spending Account benefits. 

1. LSAs are a great way to grow benefits without growing budget: Multiple point solutions can add up when HR leaders try to address all the areas of wellness. Consolidating under one holistic flexible benefit solution can actually increase the perceived value of that benefit by up to 51 percent.
2. Differentiate your company. Live your values: 85% of employees say their companies don’t support their careers. By providing LSAs you empower employees.
3. Only pay for what employees use - don’t let dollars go to waste: If an employee only uses $50 of their $100 of their allocated funds, the company saves money via the unused funds.
4. You foster wellbeing in the workplace: more value perception for benefits given employee choice vs. those chosen by the employer: Employer chosen benefits see member engagement hovering around 30-50%. Forma’s Lifestyle Spending Account see user engagement around 85%.
5. You can attract and retain the best employees: Employees are 1.6x more likely to stay at their company when they are satisfied with their wellness benefits.
6. Benefits administrators can do away with the agony of point solutions: 60% of employers are feeling the pain of point solution fatigue. A flexible solution consolidates vendors and alleviates this headache.
7. Employees get to choose benefits that matter most to them: A GlassDoor survey found that 94 percent of employees want benefits that meaningfully impact their quality of life.
8. Companies can quickly respond to world events and support employees: Lifestyle Spending Accounts are able to be stood up in as little as 5-10 days. For example, some employers set up emergency relief accounts to support their employees in Ukraine when the international conflict started.‍
9. Companies can actually save money: Affirm saved over $500k by replacing Concur (at $8/claim).
10. Equitable DE&I flexibility can address benefits gaps while not marginalizing others: In a recent Gallup poll, 42% of workers said DE&I initiatives were an important part of their next job. 

Getting started with Forma's Lifestyle Spending Accounts

In short, having access to a Lifestyle Spending Account can be a great way for employers to provide additional benefits while also helping employees make the most out of their own money.

By understanding how LSAs work, HR leaders can maximize the value they get from this employee benefit while ensuring their team has access to all the resources they need for better mental and physical health.

<span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a consultation</span> with Forma to learn about Lifestyle Spending Accounts (LSAs) and how they can benefit your team.

What other products are offered by Forma?

In addition to LSAs, Forma offers multiple pre-tax accounts, including:

1. Flexible Spending Accounts (FSA)
2. Health Savings Accounts (HSA)
3. Employee Stipends
4. And much more

<span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">Schedule a consultation</span> with one of our experts to find out which pre-tax accounts best suits your organization.

Lifestyle Spending Accounts (LSAs) FAQS

What is the difference between a Lifestyle Spending Account and an HSA?

A Lifestyle Spending Account (LSA) is funded by employers to cover a broad range of wellness and personal development expenses, potentially taxable to the employee. On the other hand, a Health Savings Account (HSA) is a tax-advantaged account for those with high-deductible health plans, funded by both employers and employees, used exclusively for medical expenses.

How are Lifestyle Spending Accounts taxed?

Lifestyle Spending Accounts (LSAs) are usually funded by employers, and the taxation depends on local laws. Often, the benefits from LSAs are considered taxable income to the employee. This means the value of the LSA benefits may be added to the employee's gross income and taxed accordingly. If you need tax or legal advice, please consult with counsel or a certified tax professional.

Where can I find more information on LSA tax?

​For detailed information on how to approach Lifestyle Spending Account's as a taxable benefit, consult a tax professional, your employer's human resources department, or the official website of your country or state's tax authority.

These sources can provide the most accurate and up-to-date information tailored to your situation and jurisdiction.