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Maximize employee productivity with spending accounts for remote work

Best-in-class Work from Home & Home Office Setup Spending Accounts allow individuals to work better, and shield your organization from waste and risk.

10
 Min Read 
• 
12/28/23

Key takeaways

  • Remote work gives employees more flexibility, and businesses benefit. Companies that have more lenient location arrangements are proven to have higher revenue growth.
  • Conventional approaches for remote work stipends don't work. Most result in low engagement, unnecessary costs, and compliance risks for businesses.
  • A better solution is a customizable spending account that garners more employee appreciation, helps save costs, and reduces compliance risks.
  • With Forma, you can design your spending account in a way that works best for your organization whether that be for a one-time home office setup, ongoing utility expenses, or a combination of the two.

The drawbacks of conventional remote work stipends

In recent years, workplace dynamics have significantly changed. In response to a staggering 56% of employees who express a desire to work remotely some or all of the time, companies have adapted. Now, over half of the workforce embraces hybrid work arrangements.

There is a real business case to give employees more freedom with where they work. Flexible arrangements, equivalent to employees as an 8% raise, are an effective strategy to attract and retain top talent.  A recent report from the Boston Consulting Group and Scoop highlights that companies who provide more flexibility in work locations outperform those with restrictive policies by an impressive 16 percentage points in revenue growth.

Organizations often offer work-from-home stipends to provide employee support. However, these conventional approaches have operational, financial, and compliance challenges.

Organizations need a better solution to support remote workers; enter customizable spending accounts. Employers specify covered expenses, and workers decide how to use the funds. These spending accounts stand out as a superior method to support employees and make a sound investment.

While there are evident benefits linked to spending accounts, it's crucial to grasp why current remote work stipends may not be effective. Some companies already cover work-from-home related expenses. This is often done in one of two ways:

  1. A stipend added to payroll: Companies automatically drop funds within workers’ paychecks for their work-from-home expenses. For example, you append $100 to every other biweekly paycheck to cover an employee’s internet and cell phone bills.
  2. Reimbursement via an expense management tool: An employee can submit a claim for their work-from-home related expense when they purchase an item within your company’s policy.

While these approaches may seem straightforward, they result in the following negative outcomes for employees and employers.

Outcome #1: Low employee engagement and satisfaction

Your employees are unlikely to fully embrace their benefit if it blends into their regular paycheck. Likewise, if the reimbursement process is complex and inconvenient, employees may not engage with it. Even with your best intentions, employees might inadvertently overlook the valuable benefits you provide. 

Outcome #2: Unnecessary costs that can be hidden

When you append a remote work stipend to each individual’s paycheck, the benefit is 100% utilized and this contributes to excessive waste. You give away extra money no matter if and how your workers use it. Worse, if you give it to all employees, you may be inadvertently providing “free” money to individuals who always work in-office. Since workers are often unaware of the existence of these stipends, employers receive little recognition for their well-intentioned efforts. In a time when benefits leaders are pressured to cut costs and show value, this approach is flawed.

If instead a company uses expense management software for employees to reimburse remote work expenses, there are still gross capital inefficiencies. Typically, each time an employee submits a claim, you pay the employee for the incurred expense and you pay an expense management vendor a per-claim fee. Since these systems are made for accounting and finance teams, benefits leaders often have to burden non-HR teams to run this program. Or they struggle when attempting to administer these programs themselves.

Outcome #3: High potential for compliance risk

Several U.S. states such as California and Massachusetts have enacted legislation that mandates employers reimburse for specific remote work-related expenses. Though the U.S. federal government has delegated this decision to states, some countries like Belgium and Spain address this matter on a national level. And beyond legal considerations, it is important to account for tax regulations applicable to both your company and its workforce to maximize savings.

Due to the nuanced and evolving nature of these rules, it is not uncommon to come across remote work stipends that are not compliant. Failing to comply with state work expense reimbursement rules can lead to potential risk for employers depending on the state, including employee wage and hour lawsuits, damage penalties, and other sanctions.

3 positive outcomes from customizable spending accounts 

Companies require a useful, cost-effective approach to remote work stipends. Customizable spending accounts have emerged as the market-leading solution. It’s common for companies to realize three positive outcomes after their implementation.

Outcome #1: Enhance employee appreciation and engagement 

With customizable spending accounts, companies give workers more choice to purchase what they need to enhance their productivity. When you integrate your program policy within a modern third-party administrator (TPA), employees become clear on what expenses are eligible for reimbursement. This, in turn, boosts the likelihood that they use their funds for remote work-related expenses. As employees actively benefit from this program, they will realize its value and appreciate the flexibility it offers. You’ll get the credit you deserve.

Outcome #2: Gain major cost efficiencies

When you give only the employees who work hybrid or remotely a spending account, you will experience savings. Employees who work in-office will not automatically get this “free” money via their paychecks. You can reduce costs because not every remote worker who has access to the stipend will use it – WFH-related accounts typically have between 50-60% utilization rates. Moreover, each employee has different costs for their home office setup and utility bills, so you will likely see further savings from individuals not maxing out their stipend amounts.

The below illustrates a hypothetical example of a company with 1,000 employees and a monthly $50 stipend. Even if we assume a conservative budget utilization rate of 80%, the firm experiences 28% savings moving from a direct to payroll stipend to a spending approach model.

Table 1: Simple calculations show how companies can save big.

When you administer the benefit under a modern TPA instead of an expense management system, you do away with the per-claim fees. A more streamlined way to administer your remote work stipend helps you save on transactional operating expenses and admin overhead. This can mean big savings as shown in the table here.

Table 2: Spending accounts eliminate per-claim fees.

Outcome #3: Lower compliance risk while you maximize tax savings

An important aspect of a customizable spending account is that employers can easily maintain a clear list of what’s eligible under the stipend. This allows companies to have tighter controls over how employees use their funds. With such regulatory oversight in place, it can be more straightforward for organizations to meet the requirements of accountable plans such as substantiation. This helps benefit companies and their workers with tax-free accounts.

Want to understand how your organization can introduce a winning perk while you save? Reach out for a <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button"> personalized value assessment</span> with a Forma expert today.

What should a company’s spending account for remote work cover?

Two accounts are most beneficial for remote workers: Home Office Setup Spending Accounts and Work from Home Spending Accounts. In this section, you’ll find best practices for account design.

What to include for a Home Office Setup Account

Hunching over a kitchen counter doesn’t cut it for the remote worker of 2024. The majority of those who work-from-home do so in a room with multiple purposes. Companies must aid new hires with their home office setup. An account dedicated to home office furniture and equipment can go a long way to help new hires work more enjoyably and effectively, and make a positive impression in their first few weeks.

What to cover:

  • Home office furniture
  • Work equipment items (e.g., headphones, computer accessories)

Tax benefits:

  • Reimbursement of some remote work expenses may be eligible for tax-favored treatment as business expenses if the employer uses an accountable plan or the expense qualifies as a working condition fringe. Employers hoping to reimburse eligible expenses on a tax-free basis must satisfy additional IRS requirements.

Key requirements:

  • Compliance support: In the U.S., states have various laws impacting reimbursement of employees’ business expenses. Your TPA can provide issues to consider with your tax and legal counsel given where your employees operate.
  • Discounted marketplace: Make it simple for your employees to discover the best products that will make their ergonomic home office set-up comfortable for them. Give your workers recommendations of what to buy and discounts can encourage them to use their stipend.
  • International reach: Ensure that your employees domestically and internationally can utilize the benefit. Consider aspects like the cost-of-living adjustments so that you can provide the perk equitably to your workers everywhere.
  • Policy details: When you set up a home office spending account, you need to set how much you will fund and when the amount will expire. Details like whether you prorate purchases for new hires can help save budget.

What to include for a Work from Home Spending Account

With an ongoing stipend dedicated to productivity, you can help your employees achieve more than before. Team members can upgrade to a higher tier of service which translates to more time at work and less time fixing tech issues. In addition, workers report that 31% of their personal phone usage is for work-related purposes. This warrants companies to subsidize at least a portion of a worker’s monthly cell phone bill.

What to cover:

  • Office supplies (e.g., notebooks, pens, pencils, scissors)
  • Internet/WiFi fees
  • Internet accessories (e.g., modem, router, network hub)
  • Phone bill
  • Utility bill

Tax benefits:

  • Reimbursement of some remote work expenses may be eligible for tax-favored treatment as business expenses if the employer uses an accountable plan or the expense qualifies as a working condition fringe. Employers hoping to reimburse eligible expenses on a tax-free basis must satisfy additional IRS requirements.

Key requirements:

  • Seamless employee experience: Your employees should be able to easily reimburse routine, monthly expenses.
  • A unified platform: For optimal flexibility, find a TPA that allows for tax-advantaged programs to live alongside taxable programs. That way, you can expand your benefits beyond the accountable plans while making sure your benefits are compliant. For example, you could create a taxable Lifestyle Spending Account (LSA) for employee meals and nutrition for employees who fully work from home and are unable to benefit from in-office lunches.

What other benefits are sometimes included?

Some workers are most productive when they work away from their homes. As a result, companies might cover coworking fees (e.g. WeWork, office rental).

This can be immensely beneficial for certain groups of employees such as those who have at-home caregiving responsibilities or others who may not have visible workspaces in their houses. When you help workers opt into more flexible settings, it serves as a positive signal that you support your people holistically. 

How to develop a compelling business case for customizable spending accounts

A misconception about customizable spending accounts is that they are a luxury perk. In reality, these accounts help companies achieve cost savings and allow workers to get more done.

Below are tried-and-true steps that will help you justify the investment in customizable spending accounts to leadership:

  1. Conduct a simple ROI assessment: Evaluate current program spend, employee utilization, and administrative efforts across multiple solutions. Compare this with potential savings and value from a consolidated flexible benefits program.
  2. Estimate forecasted spend: Determine the projected implementation costs of the new flexible benefits program. Consider aspects such as the number of employees, locations, tax savings, typical utilization rates, and more. Assess competitors’ approaches to ensure your program is attractive to the market.
  3. Secure budget and approvals: Explore options where you can reallocate funds from unused budgets. Move your current reimbursement program funds into your program. Look into today’s budgets set aside for real estate or ergonomic assessment or equipment and collaborate with other teams to see if you can move around budgets.
  4. Define success metrics: Collaborate with stakeholders to establish essential organizational goals. Set measurable targets, create reporting mechanisms for easy monitoring, and measure success against your benchmarks.

Successful strategies to design a spending account

A successful remote work stipend involves several key steps. Start with the business goals of the program such as enhanced employee satisfaction or higher utilization. Next, consider what your employees need – you may need to run a survey or conduct work-from-home focus groups.

The nuts and bolts of your program design are critical considerations. What items you cover, how much you provide, the frequency with which you replenish or expire funds, and how you communicate your program to employees will shape your program’s success. Forma has global benchmarks and Eligibility Standards. Our industry best practices will help you craft your program with ease.

Remote work spending account FAQs

Are customizable spending accounts a taxable benefit?

Typically, yes - customizable spending accounts that are set up as Lifestyle Spending Accounts, or LSAs, are taxable. Customizable spending accounts may incorporate tax-advantaged elements in special circumstances. In the U.S., certain remote work expenses may be eligible for tax-favored treatment if the employer uses an accountable plan or the expense qualifies as a working condition fringe. In other countries, there may be laws so the benefit might be non-taxable. Your TPA can provide issues to consider with your tax and legal counsel given where your employees operate.

How can I save money with a spending account?

Instead of paying for the full cost of wellness stipends regardless of utilization, customizable spending accounts are “notional”. Companies only pay for what employees use.

What should I cover under my Home Office Setup Spending Account? What about a Work from Home Spending Account?

While compliance and tax optimization should be considered, it’s ultimately up to the organizations to determine what expenses they will cover for their accounts. Forma’s Eligibility Standards cover our best practices - reach out to one of our experts for a copy today!

How can I help my remote workers’ social well-being?

It can be helpful to introduce other stipends related to your remote workers’ social well-being for full support. Imagine if you gave remote workers a monthly stipend for virtual team events or a small budget for coffee chats with remote peers. The possibilities are endless.

Can LSAs be offered to global employees?

Yes, one of the best advantages of an LSA is that it can be provided to employees around the world. Forma provides one platform for all workers that makes admin easy. We have guidelines for companies who seek to provide an equitable global stipend.

Get started with Forma

Forma helps manage remote work stipends for incredible global companies such as Allbirds and Affirm.

Here’s what employees love about Forma’s spending accounts:

“Previously, my company would deposit our remote first benefits with our first paycheck. While functionally the same, with Forma I feel less like I am spending my own money and more like I am accessing benefits.” Forma user, G2 review
“With remote work being more and more acceptable, my employer provided Forma as part of employee benefits and I was able to acquire a great amount of home office gadgets that I would've taken a lot longer to acquire.” - Forma user, G2 review

To learn more about best practices and speak 1:1 about your considerations for a best-in-class remote work stipend, <span class="text-style-link text-color-blue" fs-mirrorclick-element="trigger" role="button">schedule a consultation</span> with one of our experts today. 

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This document is for informational purposes. Forma is not engaged in the practice of law. Nothing contained herein is intended as tax or legal advice nor is it intended to replace tax or legal advice from counsel. If you need tax or legal advice, please consult with counsel or a certified tax professional.