Today’s tight labor market is mostly beneficial for companies in that low unemployment generally signals a growing economy. But as employers know all too well, it also deepens the challenge around hiring and retaining a workforce.
That challenge may be acute for companies trying to induce workers to return to the office following a long period of remote working.
One response to this labor environment: providing employees with increasingly flexible benefits.
However, according to a study released on Monday, a newer type of account — “lifestyle spending accounts,” or LSAs — has quickly become the most common employer-funded perquisite. (Unlike FSAs and HSAs, LSAs are categorized as perks because they’re funded solely by employers and are considered taxable income for employees.)
LSAs have been around for a few years, but the current low unemployment rates have focused attention on them as hiring and retention tools.
Lifestyle Spending Accounts Pave a New Way
LSAs differ from HSAs and FSAs in another key respect — employees can use them for many types of spending needs, as determined by the employer. These could include health-related purchases such as gym memberships, nutritionists, and health-care coaching; as well as spending on, for example, learning and development, family activities, commuting, pets, or charitable giving.
Benepass found that 51% of the studied employers offered LSAs this year. That was a steep uptick from 37% in 2022.
Taken at face value, the results of the new study are fairly notable (although they must be viewed with caution, because Benepass, a provider of employee benefits solutions, including LSA programs, performed the research).
Based on an analysis of benefits data from Benepass clients representing 60,000-plus employees and publicly available data, Benepass found 51% of the studied employers offered LSAs this year. That was a steep uptick from 37% in 2022. (Among popular pre-tax spending programs, 86% of the employers offered health FSAs, 77% offered HSAs, and 63% offered dependent care FSAs.)
Last year’s most-offered perk category, fitness and wellness programs, also became more prevalent in 2023, but rose just four percentage points, to 45% of studied companies. Some companies have rolled their previous stand-alone fitness and wellness programs into their LSAs.
Large companies (more than 1,500 employees) were the most aggressive in the LSA space, with 75% of them providing a lifestyle spending account in 2023, compared with just 40% last year, according to Benepass. A recent survey by Mercer somewhat corroborated that result, finding that 70% of large companies were considering LSA adoption.
According to Benepass, two bellwether employer industries in the benefits arena, technology and healthcare/life sciences, saw strong growth in LSA adoption, with increases of 25 and 21 percentage points, respectively, over 2022 levels.
Meeting Diversity Needs
The growing popularity of LSAs matches employers’ growing sensitivity to the diverse nature of their workforces.
“Companies are becoming more aware that traditional one-size-fits-all benefits aren’t designed for today’s workforce,” said Benepass CEO Jaclyn Chen. “This year’s findings show that companies prioritize flexible benefits to serve a diverse workforce and adapt to modern stressors.”
Employers can include just about any spending category in an LSA program, and the trend is toward expanding the number of eligible categories.
Where eight to nine categories were common in 2022, 11 to 12 categories were more common this year, according to the Benepass study. “The more common LSAs become, we’ll see that number grow as companies embrace the flexibility,” the report said.