What is a Stipend? Everything You Need to Know

Nowadays, the highly competitive and evolving job market requires every job seeker and professional to understand the different types of compensation being offered to them.

Why? More companies are now implementing stipend pay programs to support their employees' living expenses and lifestyle costs. According to a SHRM study, 91% of employers offered mental health coverage benefits in 2022, which is a huge step towards employee wellness.

Now, what is a stipend, exactly? This article serves as a comprehensive guide to answer that question, exploring key differences between stipends vs salaries, reasons companies offer stipends, types of employee stipends, and more.

What is a stipend?

A stipend is a fixed amount of money paid regularly to individuals to support them during training, education, or unpaid work. Unlike a regular salary or hourly wages, stipends typically cover living expenses, educational expenses, or other related costs without constituting a full wage for work performed.

For example, graduate students often receive stipend payments to help cover basic costs while pursuing research or academic projects. Stipends serve as financial support rather than direct compensation for services rendered, often exempting recipients partly or fully from waged or salaried employment.

Stipend pay helps individuals participate in career-building activities without taking on a full financial burden, especially when the role benefits the recipient's learning more than the employer's immediate operations.

Stipend vs salary: Key differences you need to know

While stipends and salaries both involve money paid to individuals, their purpose, tax treatment, and employment relationships create distinct differences:

• Purpose: A salary is regular financial compensation paid to an employee for work performed under a formal employment agreement. On the other hand, an employee stipend is often a fixed amount paid to cover expenses and support professional or educational development, not wages for regular work.
• Employment status: Salaried employees typically have a defined role with regular job responsibilities subject to minimum wage and labor laws. There are stipend recipients who might not be considered employees in the traditional sense, especially in internships or training roles where the program focuses on learning rather than direct work contribution.
• Tax treatment: Salaries are subject to withholding of income tax, Medicare taxes, and payroll taxes. Stipends, depending on whether they cover qualified expenses or are considered taxable benefits, may or may not have tax withholding, leading to different tax return responsibilities.
• Amount and frequency: Salaries are usually paid on a predictable schedule (e.g. monthly or bi-weekly) and reflect a negotiated annual salary or hourly wages. Stipends tend to be a fixed amount paid periodically or as a lump sum, with less emphasis on hours worked or job performance
• Benefits and legal protections: Salaried workers often receive additional benefits such as health insurance, paid time off, and retirement plans. Stipends generally do not come with these extras, but can supplement other benefits offered by employers, like healthcare stipends or wellness stipends.

Reasons to offer stipends

Companies offer employee stipends for several strategic and employee-centric reasons, including:

1. Competitive employee benefits package
   Offering stipends allows employers to create flexible, attractive benefits tailored to employee needs. Stipends, such as lifestyle spending accounts or wellness stipends, give workers more choice and control over benefits, enhancing recruitment and retention efforts.
2. Tax advantages
   Certain stipends have favorable tax treatment, potentially reducing payroll taxes and administrative burdens for employers. For example, healthcare stipends or educational stipends might be considered tax-free under IRS guidelines, providing tax benefits to both employers and employees.
3. Boost employee morale
   Providing stipends shows investment in employees' well-being and development, which raises employee engagement and morale. Support through stipends for commuting expenses, gym memberships, or home office equipment signals that the company values work-life balance and professional growth.
4. Strong company culture
   Stipend programs help foster a culture of support and flexibility, especially in distributed or remote work environments. Offering remote employees home office stipends or wellness stipends helps keep teams connected and valued regardless of location.
5. Talent attraction and retention
   Employers who offer stipends stand out as forward-thinking and employee-focused, attracting top talent who seek financial support for training or living expenses. Stipends can be key incentives during challenging job markets or when competing for skilled candidates.
6. Professional development
   Stipends dedicated to job training, continuing education, or certification fees empower employees to expand their skills and advance their careers. Professional development stipends increase workforce capabilities, driving company success and employee satisfaction.

Types of employee stipends

Employee stipends come in various forms, each designed to cover specific needs or expenses:

1. Lifestyle spending accounts
   These accounts provide a fixed amount of money for employees to spend on wellness programs, gym memberships, commuting expenses, or meals. Lifestyle spending accounts offer customized benefits that support employee happiness and productivity.
2. Health insurance stipends
   Employers may offer health insurance stipends to help employees cover health insurance premiums or medical expenses, especially for remote or part-time workers who may not qualify for traditional company plans.
3. Home office stipends
   With increased remote work, home office stipends help cover equipment costs like desks, chairs, monitors, or internet fees. This stipend supports employee efficiency and comfort while working from home.
4. Family stipends
   Family stipends help employees defray childcare costs, elder care, or family-related living expenses. This type of stipend addresses employees' work-family balance needs.
5. Job training/development stipends
   These stipends provide financial support for educational expenses, certifications, or professional development programs. Job training stipends enable employees to enhance their skills and value in the workplace.

Understanding what is a stipend and how it differs from a regular salary is crucial for aspiring job seekers and professionals navigating career development opportunities. Stipends provide vital financial support for living expenses, educational pursuits, and job training, serving as a bridge to career advancement.

Companies are increasingly offering stipends as part of their competitive employee benefits packages, helping to attract and retain talent while fostering employee engagement and growth.

By knowing the types of stipends available, their tax implications, and the reasons employers offer them, professionals can make informed decisions when evaluating job offers or training programs that include stipend pay.

Interested in establishing an accurate estimate of your expected compensation? Determine your expected salary based on your job title and location using the Personal Salary Report.

FAQs

Here are some frequently asked questions about employee stipends:

Is a stipend considered a wage?

Typically, a stipend is not treated as a wage or salary because it compensates for expenses or educational support rather than work performed. However, tax authorities may consider stipends taxable income, and recipients should understand any tax withholding or reporting requirements.

What is the difference between a stipend and an allowance?

A stipend is usually a fixed, regular sum given for a specific purpose related to training or living expenses, while an allowance can be broader and may cover variable expenses such as travel, meals, or housing. Both support employees financially but differ in purpose and administration.

Is a stipend better than a salary?

It depends on the context. A salary provides consistent financial compensation and benefits tied to employment, making it preferable for long-term financial stability. A stipend offers financial support for temporary roles, education, or specialized purposes, which can be advantageous during training or internships but may lack the security and benefits of a salary.

Are stipends taxable?

Many stipends are taxable, especially if they exceed qualified educational or medical expenses. The tax treatment depends on the stipend's purpose, with some tax-free stipends available under IRS rules. Recipients should report stipend income accurately and understand tax withholding obligations. Understanding these tax implications is vital for those receiving stipends to comply with tax laws and optimize financial planning.