Whilst typically associated with the realms of education or religious institutions, stipend pay is becoming increasingly prevalent in the corporate world where remote work is on the rise.
In line with this development, it’s important that remote businesses understand the implications of paying stipends to their staff. That’s what we’re going to cover in this article.
What is Stipend Pay?
Stipend pay is a form of compensation paid to employees typically intended to cover expenses incurred whilst doing their job.
Traditionally, a stipend would be used to cover expenses for things like travel, accommodation, food, and other necessities, or to cover such costs during formal training.
For businesses with remote workers, they’re often used to cover the costs of working from home. For example internet and phone bills, or to make up for benefits employees would be entitled to when working in the office or on-site.
Why is Stipend Pay Important?
1. It Can Reduce Taxable Income
By offering stipend pay to your staff you can help them reduce the amount of tax they ultimately pay. This is because employees get to keep the entire amount of their stipend pay as they’re not subject to taxation for social security or Medicare.
2. It Increases Employee Productivity
A good business leader will recognize that a comfortable, content employee will perform better than a worker that is under-resourced and feels undervalued.
By offering stipends to remote employees to cover the costs of working from home, you demonstrate that you appreciate their value to the organization which, consequently, will help them to deliver their best work.
3. It Enhances the Working Environment
Nowadays employees are increasingly demanding benefits and perks. And, if you run a remote workforce, stipends can work to cover for benefits that employees would have otherwise received if they were working in person rather than remotely.
Types of Stipends
1. Vacation or Holiday Stipends
Vacation stipends are a form of compensation offered to employees to cover the costs of taking time off from paid employment. This can be for actual vacations or to assist workers who are away on paternity/maternity leave.
Example:
TripAdvisor reimburses its employees for personal travel as part of its global lifestyle benefit.
The amount paid is based on the number of years of service each employee has and ranges from $1,250 to $1,750 annually.
2. Remote Work Stipends
As alluded to earlier, remote work stipends are increasingly popular and their use is likely to grow as remote working becomes more commonplace.
Remote stipends are essentially an investment in your remote workforce. You’re not only covering the costs incurred when working from home but also affording your workers greater autonomy by giving them control of what they need to do their jobs well.
In addition to covering utility bills and internet and phone costs, remote stipends are typically used for other office expenses including furniture and electronic equipment like laptops and headsets.
Example:
Alt employees can expense up to $100/month to be used at their discretion on things like food or to improve their home office. (Source)
3. Internships or Apprenticeships
Stipend pay in business has often been used to compensate interns and apprentices that require financial support during their time with the company.
A good example of this can be seen in the world of investment banking. Investment banks offer summer internships with stipends to students looking to make their way in the industry once they’ve completed their college courses.
4. Wellness Stipends
Wellness stipends are becoming more commonplace as businesses recognize the value of ensuring their worker’s physical and mental well-being. They can be used for a wide range of different purposes, from gym memberships and weight-loss programs to meditation retreats.
Example:
Microsoft offers its full-time employees $1,200 every year to go towards wellness-related expenses which are paid in addition to other healthcare benefits.
How Stipend Pay Works (Rules)
1. Tax Withholding
Because a stipend is not part of an employee’s salary, businesses are not required to withhold any portion of a stipend payment for the purposes of taxation.
That being said, most stipends are considered taxable income meaning that employees should be made aware of this liability.
2. No Minimum Requirements
There are no legal requirements for a minimum level of stipend pay.
Stipends are often equivalent to less than minimum wage and the level of stipend pay is entirely at the discretion of the company.
3. Fixed Amount
Stipends are fixed amounts of financial support typically provided in lump sum payments on a weekly or monthly basis.
4. Considered as Financial Support
As stipends are considered financial support, they can’t be used towards paid sick leave or for other situations that must be compensated for with the employee’s wages.
5. Negotiations-Based
Whilst the level of stipend pay is at the discretion of the employer, the final amount should be decided through an honest negotiation between the employer and employee.
If a stipend isn’t sufficient to cover an employee’s expenses, it will fail to work as an effective incentive and render the entire process redundant.
Likewise, the employee should be able to justify the amount they’re looking for with evidence such as documentation including bills and receipts.
Final Thoughts
Providing stipend pay to remote workers is an increasingly common practice as it works to improve their home-working conditions and make up for benefits they no longer receive because they’re working out of the office.
If you run a business with a remote workforce, stipends can work as a sound investment in your employees by giving them greater control of their daily working conditions. It also shows that you trust them with the autonomy to determine what they need to perform their role optimally.
NoHQ helps business leaders build successful remote strategies with actionable guides, tools, and advice from leading remote-first organizations. Take a look at some of our other guides or make use of our wide range of free tools to help your remote business succeed.
