Lifestyle Spending Account Pros and Cons Explained

A lifestyle spending account (LSA) is an employer-funded account that allows companies to distribute a wide selection of perks to an equally diverse workforce. Among Benepass customers, LSAs are the most popular type of lifestyle benefit, with 66% offering them. 

But are they the right fit for your business? This guide digs into eight pros and three cons of LSAs, including how to overcome any common problems. 

Pros: 8 benefits of lifestyle spending accounts

There are numerous advantages both for employers who offer and employees who access lifestyle spending accounts: 

Improved employee satisfaction 

LSA benefits offer variety. They provide employees with an assortment of benefits from which they can create their perfect package. The latest research suggests that breadth is essential to employee satisfaction; 82% of employees with access to 10+ benefits say they’re thriving compared to 58% of employees with one to four benefits. The ability to customize their own benefits selection is important to 70% of employees. 

Fun fact: The Benepass Lifestyle Spending Account boasts 20-50% higher employee engagement rates than traditional reimbursement or marketplace-based lifestyle spending account vendors.

Eligible expenses 

Grouping eligible expenses together makes it easier for employers to clarify what their employees can spend their LSA allowance on. For example, you might set up broad categories for lifestyle-related purchases, such as: 

• Fitness programs 
• Professional development 
• Family care 
• Food and nutrition 

Enhanced work-life balance 

Whole-person lifestyle benefits extend beyond the things that motivate employees within the workplace to employees’ personal lives. Workers can use their LSA for classes, gym memberships, wellness programs, mental health services, professional development, and other resources that build healthy habits outside the workplace. 

Greater inclusivity 

Today’s workforce is multigenerational, geographically distributed, and comprises employees with many different backgrounds and lifestyles. LSAs are inherently inclusive because their flexibility allows employees of all demographics to use their benefits in ways that best suit their individual wants and needs. 

Better cost savings 

Employers save money with LSAs. Any unused funds allocated to an employee’s benefits account can be returned or rolled over for future use. This means: 

• Employees can save for future expenses
• Employers can reduce their overall benefit spend
• Employers don’t waste a dollar 

Reduced administrative burden

Managing multiple benefits programs can be particularly time and resource-intensive for benefits admin teams. They must handle the reimbursement process and ensure employees understand how and when to file reimbursement claims. Employers can streamline their administration process by consolidating multiple benefits into one LSA program, saving valuable hours and money. 

Promotion of company values 

LSAs are the perfect way to showcase the values most important to your company. If physical health and wellness are core to your company culture, add this as a pillar of your LSA program. This move boosts your employer brand with job seekers and supports your employee retention strategy. 

Agile benefits

Market conditions and fluctuating employee preferences can cause havoc with more rigid benefits structures. It’s difficult to pivot your strategy mid-year when you’ve already committed to a particular benefits mix. 

LSAs offer an agile alternative that allows you to adapt quickly to changing market or employee sentiment. If you want to double down on offering food and nutrition and haven’t previously offered this, it’s easy to add an eligible spending category to your lifestyle spending account and invite your employees to make relevant purchases. 

Cons: 3 drawbacks and limitations of lifestyle spending accounts

Alongside the wealth of reasons to invest in lifestyle spending accounts, there are also some considerations. Check out this honest list of potential issues and how to overcome them: 

Potential misuse of funds and verification challenges 

Depending on the way you distribute lifestyle funds, employees could spend them on non-intended personal expenses. For example, you may hope to encourage workers’ professional development but discover your employees use their LSA funds for a family vacation instead.  

Overcome this by using a platform like Benepass, which is equipped with built-in guardrails around spending. Set eligibility criteria for your employees’ LSA and validate expenses at the point of sale, ensuring company funds are directed toward the specific pain points you want to solve. 

Lack of oversight 

The more complex a lifestyle spending account, the harder it is to monitor how funds are distributed to employees accurately. This lack of oversight could result in revenue loss and compliance issues. 

Overcome this by using a centralized platform with analytics and automated compliance support. For example, Benepass integrates with your payroll and HRIS systems, enabling us to ensure accurate benefits administration and making it easier to report imputed income for taxable benefits like LSAs. 

Administrative challenges 

A lot of hard work goes into setting up employee benefits; if you’re new to LSAs, the learning curve may be even steeper. Your benefits admin team may need to address benefits gaps to understand: 

• What spending categories to include 
• How to communicate your LSA program to your workforce
• How to monitor employee utilization rates
• How to track compliance 

Overcome this by leveraging a benefits platform that offers customization and support. For example, Benepass offers a Customer Experience team to answer questions and templated educational materials to aid your communication efforts. 

How to make an informed choice about LSAs

Work your way through the steps below to decide if lifestyle spending accounts are the right fit for your business: 

1. Evaluate business needs 

Start by determining how lifestyle spending accounts might align with your company’s strategic objectives. For example, if your business goal is to offer more wellness support, then adding an LSA spending pillar could be a good fit. 

2. Assess your workforce demographics

Take a detailed look at the composition of your workforce to understand how versatile your employee benefits should be. If you have employees stretching across five generations, each age group will likely have entirely different needs and preferences, which a lifestyle spending account could accommodate. Check other demographic criteria, such as your makeup of: 

• Employees with dependents 
• Employees with disabilities 
• Employees working remotely or in the office
• Employees with diverse cultural or religious backgrounds 

3. Comparing lifestyle spending accounts vs. health savings accounts

Before committing to an LSA, employers can compare this model with alternative employee benefits, such as a tax-advantaged health savings account, to select the best solution for your workforce: 

• LSAs are flexible benefits suitable for a variety of lifestyle-related expenses, such as wellness, continuing education courses, and personal enrichment. 
• HSAs are designed to help individuals save for and pay for qualified medical expenses, such as doctor visits and prescription medications. 

The business needs evaluation you completed in step 1 will help you decide whether you’re looking solely for health benefits, or want a more versatile offering. 

4. Conduct financial analysis

Perform a detailed financial analysis to understand the cost implications of implementing LSAs. Lifestyle spending accounts are entirely customizable according to your budget; as a ballpark, the 2024 Benepass Benefits Benchmarking Guide reveals an average annual cost of $780 per employee. 

5. Assess administrative capacity 

Consider your HR team’s administrative capacity to manage LSAs and any potential challenges, such as verifying wellness expenses or monitoring for misuse. If you lack the resources or expertise, consider partnering with a vendor who can provide support and guidance in managing LSAs effectively.

6. Gathering employee feedback 

Before rolling out any benefit, ask your employees what they want and need to double-check that LSAs are the right match. Ask questions like:

• Do you feel that your current benefits package is meeting your needs?
• Are there any areas where you want more support or flexibility?
• How familiar are you with lifestyle spending accounts? 

Their responses can provide valuable insights and tailor the LSA program to effectively meet employee needs. 

7. Meeting compliance requirements 

Familiarize yourself with benefits regulations set out by ERISA, ACA, HIPAA, and FLSA to ensure any potential LSA would comply with industry standards and legal requirements. Partnering with a vendor specializing in LSAs can ensure compliance and provide guidance on any regulation updates or changes. 

Explore the Benepass Lifestyle Spending Account

The best way to learn if an LSA is the right fit for your employees? Connect with a benefits specialist like Benepass to see the nuts and bolts of a lifestyle spending account in action and compare it with alternatives like health savings accounts, flexible spending accounts, or various types of stipends. 

Benepass offers all these benefits and more, neatly packaged in a modern, people-first platform that scores 4.9 out of 5 with the G2 software user community. 

Book a free Benepass demo or email sales@getbenepass.com, and we’ll happily answer your queries.