Employees want to be fairly compensated for work completed. Even if the pay is fair, if there are poor communications around pay and pay transparency, the perception of being undervalued can exist. Giving incentives and rewards like bonuses help motivate workers to pick up additional tasks and work extra hours should the business needs arise.
Promoting and supporting the career development of high-performing employees starts internally and projects outward to potential new talent.
Providing pay via stipends to the requisite staff or those on the outskirts of an organization is the perfect way to promote internal growth by offering rewards for those training for the job, interning, volunteering, or even apprenticing.
Below we’ll break down exactly what a stipend is, what types of stipends are available, and how they work.
What is a stipend?
Think of a stipend as an allowance for a fixed amount that’s allotted to someone outside of their normal wage or salary. A stipend is offered as an enticing benefit for filling a certain role, performing a certain task, or supporting an organization in a certain way.
Stipends are often offered to individuals who fit specific eligibility criteria, like those working on training for a job or someone interning with an organization for the summer.
Other common recipients of stipends include clergy members, apprentices, students, or volunteers in certain organizations. Their allowance would be allocated for travel expenses, food costs, living expenses/lodging, and sometimes benefits like a remote workspace or healthcare for the duration of their professional relationship.
Unlike a paycheck, a stipend is not meant to compensate for work performed. It’s a type of fringe benefit for working with or for an employer between certain bookends with the goal of improving job satisfaction and promoting a healthy internal flow.
How does a stipend work?
Stipends are paid to an individual on a daily, weekly, or monthly basis as a lump sum of money meant to offer financial support to alleviate the cost of living for the duration of their work. This makes jobs that are normally difficult to take on a bit easier to manage and more inviting to accept. The work is better compensated, where it might be offered for little to no pay elsewhere.
The benefit of stipends is that they differ in amount and purpose depending on the employer/employee and their needs or goals. For example, a student working for an organization might be paid in educational costs and lodging, whereas an employee who travels for work might be paid in the costs of gas or provided a car.
The Department of Labor (DOL) has regulations in place regarding the use of stipends and how they can be spent. Stipends may be less than minimum wage, but only if the organization uses it to pay a trainee, not adding it to an employee’s full-time or part-time salary.
Stipends also have to primarily benefit recipients like students and can’t be used to entice a student to work for less pay, ultimately benefiting the organization.
The 6 types of stipends
Stipends come in many forms, but they always depend on the needs of the employee and the purposes of the employer. Here are some of the most common types of stipends.
1. Career development stipends
Sometimes referred to as professional development stipends, career development stipends are offered annually, bi-annually, or quarterly for high-skill employees to further pursue the promotion of a career or development of those skills.
This could come in the form of books, courses, or conferences for the employee to partake in while the organization alleviates the cost.
2. Academic research stipends
An academic research stipend applies to students who might’ve received a scholarship or school grant of some kind. Instead of that money being paid directly to the school from the organization, it’s instead given directly to the student to be used for things like books, lodging, and other needs related to the further pursuit of their education.
Another form of an academic research stipend is offered by a third-party institution that may wish to see the advancement of a graduate student’s particular research or field without any added distraction from other life or academic expenses.
3. Healthcare and insurance stipends
Employers usually offer a healthcare and insurance stipend when they don’t offer healthcare or insurance benefits for an individual’s employment. This might be considered a timesaver with less hassle for the employer. However, the value of the dollar is lessened for the employee since this stipend is considered part of the payroll instead of a separate benefit.
This means that stipends of this nature are considered taxable income, unlike subsidized or employer-provided healthcare. Employees also don’t have to prove that the extra money goes to the healthcare and insurance it’s intended for.
4. Wellness stipends
Wellness stipends go towards the general well-being or improvement of an employee’s health. Sometimes referred to as wellness spending accounts, this money would work towards specific improvements like diabetes management programs, weight loss programs, preventative health screenings, or smoking cessation programs.
5. Living-cost stipends
A living-cost stipend would go towards living-related expenses, often for employees or individuals who travel for work, work remotely, or are job training. A living-cost stipend includes, but isn’t limited to, things like lodging costs, the cost of operating a car, food costs, a remote workspace, or a number of other general factors related to living while employed.
This type of stipend would also work for people working an internship or apprenticeship where they aren’t under payroll or official employment but are working for the organization for a set amount of time.
6. Expense-related stipends
The costs covered by an expense-related stipend would be factors pertaining to the job or role itself. For a student, this might look like a new computer for the semester’s academics, and for a clergyman, this might look like a car provided for travel related to work.
For a trainee, this could cover the cost of commuting to and from the job site via bus or train, or for a volunteer, this could be reimbursement for the excess equipment and supplies needed to run events for the organization.
How much are stipends on average?
Wondering, “How much is a stipend?” The answers can vary.
Stipends are a wonderful way to boost productivity and satisfaction within the various roles of employees. The beauty of stipends is that they work to fit the goals of the individual, not the other way around.
Stipend payments will vary depending on an employer’s budget and the money’s purpose. Your average office worker could get a monthly stipend of $100 for a gym membership on top of their regular pay. Meanwhile, a student could be given a quarterly stipend of $1,000 to for the furthering of their academic career.
A good rule of thumb is to think about it in terms of cost investment versus return engagement: Investing in your employees.
Suppose an accountant with a yearly salary of $80,000 a year would boost their work ethic and job satisfaction by 15 percent ($80,000 x 15 percent = $12,000) by getting that monthly $100 gym membership ($1,200 yearly). In that case, it’s probably a smart idea to invest in a gym membership. It’ll cost less for the employer per year, and the employee will be satisfied.
In this case, the perk of a wellness stipend would be a win-win for both parties.
Stipend vs. salary: What’s the difference?
Stipends and salaries may seem the same, but they have a few key differences.
Function
- Stipends: Stipends are provided for specific purposes. Employees might even be required to document how they’re spending the added money to ensure it’s going toward the right expenses.
- Salaries: Salary is routine pay regardless of how the money is spent upon receipt.
Frequency
- Stipends: Stipends: Stipends can be a short-term benefit for someone like an intern or trainee who is only working in their role for a limited time. They can also be a routine addition to an employee’s role depending on the needs and purpose of the specific stipend and who’s providing it.
- Salaries: Salaries are long-term, set amounts with expected bi-weekly payments (in most cases).
Variability
- Stipends: Stipends are set by the organization providing them. They usually don’t fluctuate from that fixed amount of money nor are they dependent on performance.
- Salaries: Salaries are open to more change than stipends. A regular salary can increase intermittently based on overtime pay, shift differential pay, or a merit increase.
Amount
- Stipends: A stipend amount isn’t subject to the standard of minimum wage and could be offered for less to certain individuals.
- Salaries: Salaries are required for an hourly wage and must meet the mandated minimum wage requirements.
Taxes
- Stipends: A stipend must have taxes paid on it at the fiscal end of the year. It’s important to make sure any stipends you receive are recorded on your tax return. This includes Medicare and Social Security.
- Salaries: Taxes on a salary are withheld by the employer.
Do I pay taxes on a stipend?
Stipends are the responsibility of the individuals who receive them, meaning they are not taxed by the employers or organizations that pay them. This means that as the fiscal year comes to a close, that individual will have to pay the tax on that money themselves.
Stipends are still considered for income tax, just like a salary, only it rests on the employee and not the employer, so it’s good to keep that in mind as you offer stipends or receive them.
The importance of offering stipends comes from the benefits of supporting the career development of high-performing employees, attracting potential new talent, and promoting growth within your company. This way, your best workers will continue to push your organization to new heights, and they’ll be able to continue putting their best foot forward every day.
Ultimately, investing in stipends means investing in your top priority: your employees.
Sources:
What Are Fringe Benefits? Types and Benefits | Investopedia
What Is a Stipend and How Do They Work? | US News and World Report
