A Lifestyle Spending Account (LSA) is a taxable, employer-funded benefit used to support employee health and wellness. Employers set their annual contribution amount and can determine how employees spend their funds. Parameters can also be set regarding eligible expenses, services, and products.
The most common LSA eligible expenses include care services, financial services, mental and physical health, professional development, wellness, and work-from-home products.
Advantages of an LSA
There are a variety of reasons why LSAs are gaining the attention of employers. LSAs do not have pre-tax implications, meaning that employers can offer them to full-time, part-time, and contract workers. Compliance is less involved compared to tax-advantaged accounts like health savings accounts and flexible spending accounts.
Additionally, employers only pay for the exact amount employees spend, retaining any unused funds. Employers can determine how funds are utilized to ensure they are working within the organization’s budget and meeting specific employee needs. Coverage gaps can be bridged when offering an LSA, providing additional support for employees with special lifestyle needs.
Disadvantages of an LSA
Since the FSA is not tax-advantaged, employers have to determine the best way to approach the taxation of the LSA. Additionally, the account is employer-funded, so it must be factored into the organization’s overall budget.
In a Mercer study, only 10% of employers offered LSAs in their benefits packages; however, 70% of respondents were interested in the benefit. Offering an LSA not only supports employee health and wellness but also has the potential to boost employee attraction and retention.