Lifestyle Spending Accounts, or LSAs, are quickly becoming a popular way for employers to offer reimbursements to employees for certain health and wellness expenses. Once an employer sets up an LSA for an employee, the employee can then spend these funds (according to the plan’s guidelines) on non-medical items and services not normally covered by a traditional benefits plan. Some expenses that can be covered in a LSA are gym memberships, yoga classes, identity theft, pets, remote work tools and resources, and personal development classes.

The key difference between LSAs and HSAs, HRAs, and FSAs, is that an LSA account is fully customizable and funded by the employer, who can determine how to set up the account for employees, including:

  • Which expenses are eligible
  • How much the employer will contribute to each employee
  • Which employees they contribute to – this can be segmented by class, department, etc.
  • The timeframe in which these contributions will be made available to the employee
  • And how funds are handled at the end of the year (required spending, rollover, etc.)

The funds spent in LSAs are taxable to the employee, unlike health savings accounts and flexible spending accounts. During tax time, most employers will add the total LSA reimbursement cost to an employee’s gross income.

Why offer LSAs?

An LSA is a great addition to any benefits package because it adds flexibility for both employees and employers. The advantages are many and include:

  • Enhances employers’ benefits package with personalization
  • Assists HR in avoiding the regulations and constraints placed on tax-advantaged accounts
  • The ability to combine LSAs with other benefits, such as an ICHRA or an HRA
  • Full customization by the employer, who can design the plan to fit employees’ needs or the culture of the business
  • No limits on the amount an employer can contribute
  • An employee perk that can be offered regardless of physical location or hours worked

LSA Disadvantages

Before setting up your LSA account, employers should be aware of a few disadvantages to this type of benefit offering:

  • LSAs are taxable to the employee, and employees should be made aware of this before they sign up
  • Since LSAs are employer-funded, this type of plan can increase their benefit budgets
  • Care must be taken when selecting the types of reimbursements. LSAs cannot include §213(d) medical expenses, such as acupuncture, chiropractic care, etc.
  • LSAs cannot include benefits that fall under the tax-advantaged umbrella, such as dependent care, student loans, etc.

Steps to Set up Your LSA

  1. Consider your total employees, budget, and timeframe: LSAs do not need to be offered to every single employee so determine who should receive this benefit, the amount you want to contribute to each employee, and the timeframe (weekly, monthly, or quarterly).
  2. Hire an LSA Administrator: Effortlessly build an LSA plan that conforms to all laws and regulations by using a plan administrator experienced in this type of benefit. LSA administrators can also simplify the experience for both you and your employees by handling all aspects of the plan, from setup to reimbursement.
  3. Select categories for reimbursement: Work with your administrator to choose non-medical and non-tax-advantaged products and services. Employers often align these offerings with their company culture and values.
  4. Communicate to your employees: Once the new plan is in place, let your employees know they now have access to an employer-funded account that aligns with their wellness needs.

Flyte’s LSA – A Simplified Experience

Imagine one debit card for each employee that they can use for all benefits—HSA, FSA, LSA, HRA—to make life easier. That’s the beauty of Flyte’s benefits administration. Our technology pulls from the correct account for each purchase, and employees can even add their debit card to their mobile wallet.

Want even more simplicity for your employees? Our mobile app provides access to benefits on the go. Employees can monitor accounts, check balances, submit claims, and request reimbursements from the palm of their hand and from a single platform.

Contact Flyte today to discuss an LSA plan and offer your employees not only a great spending account, but another reason to remain a part of your organization.