How to Calculate the ROI of a Lifestyle Spending Account

Lifestyle spending accounts are rising in popularity as more companies catch on to the fact that top talent flocks to organizations that prioritize employee well-being. These flexible benefit accounts offer practically unlimited options for companies to do so—they provide post-tax funds for employees to spend on a wide range of personal and professional development expenses, allowing them to tailor their benefits to their unique wants and needs. 

As great as these accounts are, they’re still somewhat of the new kid on the block. If you’re a benefits leader trying to implement a lifestyle spending account (LSA) program, you may need to educate internal teams on the benefits of investing in one. After all, implementing a new employee benefit is rarely a unilateral decision. You’ll probably have to gain buy-in from executive leadership, your finance team, and other stakeholders before you can get the ball rolling. 

You may be asked about the return on investment, and you’ll want to have a well-researched response handy to improve your odds of receiving approval. This guide digs into the hard and soft ROI of lifestyle spending accounts to help you prepare for internal conversations, create convincing presentations, and win buy-in from key stakeholders. 

Hard ROI of an LSA

When thinking about the ROI of an LSA, we can distinguish between “hard” and “soft” ROI. Hard ROI refers to quantifiable metrics such as cost savings and time saved. Soft ROI, on the other hand, is trickier to quantify and refers to the impact on areas like recruitment, retention, productivity, and employee engagement.

We’ll start by exploring the hard ROI of an LSA, since these are the numbers you’ll want to feature front and center to make a case for budget investment. 

Saving funds from employee forfeiture

LSAs can lead to cost savings through employee forfeiture because your company only spends when employees engage with their funds. If employees don’t spend part of their stipend, you’ll get to keep that money. 

Compare this to if you were to add money to employees’ paychecks instead. Those funds will be gone regardless of whether employees use them for their intended purpose or not. Use the calculator below to see the possible cost savings for your organization. We assume a per-employee-per-month (PEPM) cost of $3. 

Consolidating point solutions

Suppose your company currently uses a handful of point solutions to provide various benefits for fitness, professional development, WFH equipment, or food. Each of these point solutions comes with its own set of fees—the more point solutions you deploy to deliver benefits, the higher your costs will be. 

An LSA allows you to consolidate these point solutions into one flexible account, meaning you’ll only pay for and manage one vendor instead of four or more. Add up all the fees associated with your current set of vendors and compare them to the costs of investing in a single LSA vendor to quantify these cost savings. 

Reducing administrative burden 

An LSA also greatly reduces administrative burden for your teams. Instead of spending countless hours tracking expenses, approving receipts, and managing reimbursements through payroll, you can leverage a lifestyle spending account to simplify the process of administering benefits. 

With a card-first solution like Benepass, employees swipe their cards to make purchases that are validated at the point of sale depending on your company’s unique benefits policy. This eliminates the need to process hundreds or thousands of expenses for reimbursement. If you’re consolidating several point solutions into a lifestyle spending account, your team will also cut down on the time it spends managing multiple vendors.

To assign a dollar amount to these time savings, audit your processes to understand how many hours your team spends manually reviewing expenses or managing your vendors. Multiply this number by the average hourly salary of a person on your team, then perform the same calculation for the hours you’ll save if you invest in an LSA to see the potential savings. Your LSA vendor should be able to help you understand how much time you’ll save so you can make a compelling case. 

Providing tax-advantaged programs 

Some lifestyle spending account eligible expenses, such as work from home stipends or professional development benefits, can be offered to employees as non-taxable programs. Employers receive a tax deduction for providing these benefits, and employees do not pay income tax on them. 

Employers must maintain documentation for each spending use case to support these programs’ tax treatment in case of an audit. With a benefits platform like Benepass, you’ll have spending data from card transactions and employee receipts to validate eligible spending.

Soft ROI of an LSA

Lifestyle spending accounts also have the potential to improve employee engagement, reduce turnover rates, and strengthen your candidate pipeline. Don’t ignore the following items that make up the soft ROI of investing in an LSA. 

Recruiting and retaining top talent

Many companies, especially those in competitive industries, struggle to attract and retain top talent. Employees want to work for companies that care about their holistic well-being. It’s no longer enough to provide health insurance and call it a day. The companies winning top talent today are going above and beyond by providing unique employee benefits that employees can tailor to their individual needs. 

Investing in an LSA to reduce turnover can provide considerable cost savings, too. The 2023 Mercer U.S. Turnover Survey found that between 2022 and 2023 the average rate of voluntary turnover due to employee resignation was 17.3%. The cost of replacing an individual employee can range from one-half to two times the employee’s annual salary, according to Gallup research. However, companies that score highly on compensation and benefits see 56% lower attrition rates than those that rated poorly on benefits and compensation, according to a LinkedIn Talent Trends report. 

Use the calculator below to understand the possible savings associated with investing in an LSA to improve employee retention. These potential savings are even greater if you consider the range of salaries that exist across your employee base. Of course, not every employee will place the same value on an LSA, but the savings can be considerable if the investment retains even a portion of your employees. 

Improving the perceived value of benefits

It’s important to consider not just the dollar value of the benefits you’re offering but also their perceived value. The perceived value refers to how your employees perceive the merits and worth of a benefit, independent of the actual value. 

For example, consider two scenarios: giving employees $100 a month to spend on wellness vs. $1,200 as a one-time bonus. In the first scenario, employees receive a monthly reminder that their company supports their well-being. They can spend the money on a relaxing massage, yoga class, online therapy, or any number of wellness activities. With a dedicated stipend, they have money that’s set aside specifically to care for their wellness. 

Now compare this to employees receiving $1,200 on their paycheck as a bonus. Employees might barely notice this on their paychecks before it’s spent on groceries and bills, and they may feel pressured to spend it on “practical” items instead of wellness initiatives. On the other hand, an LSA provides a guilt-free avenue for employees to take care of their health and wellness. 

As one Benepass user put it in a G2 review: 

“At times it can be difficult to dedicate money to specific areas where they’re helpful but not always top of mind (such as health and fitness) so having a benefit with a monthly expiration dedicated to this area in my life helps me better prioritize my spending for each month.”

Living out your corporate values 

Everyone wants to feel proud of the work they do and who they do it for. People want to work for companies that align with their values: Qualtrics research found that 56% of employees won’t even consider working at a company that has values they disagree with. 

When employees are assessing values alignment, they will look at everything, including your employee benefits. An LSA demonstrates your commitment to corporate values like diversity, equity, inclusion, and belonging (DEIB) by making your benefits more inclusive. Because of their flexibility, LSAs create a culture of inclusion by acknowledging and validating that everyone’s needs are different and that you trust your team to make the decisions that are best for them. 

You can even use an LSA to create benefits that support certain populations. For example, using an LSA to provide an inclusive family care and formation benefit can help employees with the costs of childcare, dependent care, fertility services, adoption, or surrogacy. This allows you to cover a wide variety of family needs and support all the ways that families come to be. 

LSAs also allow you to provide the same slate of benefits for remote team members and satellite offices as headquarters. Food-focused LSAs, for example, can fill a gap for remote team members if HQ employees frequently receive free food or enjoy an on-site cafeteria. Similarly, an LSA that covers food delivery, groceries, and restaurants is more equitable for a distributed, global workforce. Employees will have various spending options regardless of where they live, which might not be the case if you partner with specific vendors. 

Incentivizing wellness behaviors and healthy lifestyles 

Preventing illness and encouraging healthy habits are key to reducing healthcare costs for your company. The average 2023 annual premium for employer-sponsored health insurance was $8,435 for single coverage and $23,968 for family coverage, according to the KFF 2023 Employer Health Benefits Survey. Unsurprisingly, a recent survey by WTW found that controlling healthcare costs was the top health and well-being priority over the next three years for 69% of companies. 

Providing a wellness-focused lifestyle spending account that helps employees lead healthier lives is one way to reduce these costs. Indeed, studies have shown that companies experience $1 to $3 decreases in healthcare costs for every dollar spent on wellness. If employees have benefit funds set aside to spend on their health, they may be more motivated to make positive lifestyle changes that improve their health and lower their likelihood of developing conditions such as diabetes. 

Consider investing in a flexible wellness LSA that employees can spend on items like the following:

• Nutritional supplements
• Healthy meal kits
• Gym memberships
• Fitness equipment 
• Workout classes
• Health apps

Of course, health is not only about the physical. Mental health conditions like stress, anxiety, and depression can impact employees’ health and contribute to higher healthcare costs. Your wellness stipend can also cover items and services like online talk therapy, meditation apps, and massages.

Creating a culture of engagement among your team

Lifestyle spending accounts engage over 85% of employees on average, and this engagement has positive implications for productivity, morale, presenteeism, and retention. 

Studies show that disengaged employees cost U.S. companies around $450-$550 billion annually. Companies with highly engaged employees are 21% more profitable and enjoy higher customer satisfaction, increased profitability, healthier workers, better retention, and fewer workplace accidents. As you’re presenting to leadership, highlight how a competitive benefit like an LSA can have a very real impact on your company’s ability to achieve its goals and realize higher profits.

How to get started

Convinced of the value of a lifestyle spending account? It’s easy to set up an LSA in four steps: 

1. You’ll choose your LSA’s eligible expenses, for example, professional development, meals, wellness, or family and childcare. 
2. We’ll code your unique benefits policy template into the Benepass platform and issue Visa cards. 
3. We’ll connect to your payroll to automate employee enrollment. 
4. You’ll communicate your benefits offering to your employees and invite them to join our Benepass platform.

We also have benefits specialists who can help you understand your unique ROI of investing in an LSA. Book a free Benepass demo today to schedule your consultation, or email sales@getbenepass.com.