What HR needs to know about lifestyle spending accounts

If you’re in need of a spa day but can’t afford one, don’t worry—your employer will pay for it. Or it might, if it offers a lifestyle spending account (LSA).

LSAs came onto the scene in the 2010s, but employers really started to take notice of them in the last few years, Kevin Robertson, executive director and CRO of HSA Bank, told HR Brew. Some 51% of employers surveyed by benefits provider Benepass offered an LSA benefit in 2023.

LSAs could positively impact employee retention, according to ADP research, because of their potential to help improve employees’ financial well-being. Some 74% of US employees said they are more likely to leave their job for one that offers better financial wellness benefits, a survey by Betterment at Work found.

How it works. These employer-funded accounts provide employees with the financial flexibility to manage expenses that typically wouldn’t be covered by traditional benefits. What is covered by an LSA and how much funding is allocated to an LSA is really up to employers, Robertson said.

“The hallmark trait of LSAs is that they are flexible,” he said. “They can be designed very narrowly or they can be widely broadened. It’s really at the employer’s choosing.”

LSAs can cover expenses including, but not limited to, gym memberships, spa days, therapy, life coach services, childcare, pet sitting, estate planning, groceries, home office supplies, tax prep, and more—seriously, the list is almost endless.

“Employers are unencumbered by any type of restriction,” Robertson said. “They can make this whatever they want because there are no restrictions.”

LSAs are 100% employer-funded, Robertson said, describing the benefit as low cost and easy to use and administer. Employees can utilize the funds employers allocate for their LSAs by means of a debit card (similar to how an FSA works) or—and Robertson says this way is more common—through receipt reimbursement, meaning the employee submits the receipt to the LSA provider the employer is working with.

Zoom out. When 90% of Americans are stressed about their finances, according to a Discover and Thrive Global report, HR is uniquely positioned to provide solutions that can help alleviate their employees’ economic burden. LSAs are one tool they can add to their arsenal that can help staff, while simultaneously making their organization a more desirable place to work, Robertson said.

“Taking away [employees’] financial stress makes them happier, more engaged, and more productive,” he said. “It’s about having happy employees that are producing and sticking with your company.”

Correction 02/29/24: This piece has been updated to reflect that LSAs are taxed.