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When it comes to pay, employers have a few options. Most people are familiar with salaries or hourly wages, but stipends are another tool. Companies often use them alongside regular pay to cover targeted costs such as commuting, professional development, and wellness. In the right situations, stipends can benefit both employers and employees.
Let’s dive into the details of stipends versus salaries and why both are important in today’s workplace.
What’s a salary?
A salary is steady compensation that an employer pays in exchange for your work. It’s usually shown as a yearly amount and then split into monthly or bimonthly paychecks. The amount you earn depends on several factors, including your role, experience level, and where you live.
What’s a stipend?
A stipend is a payment employers give to cover specific needs on top of, or instead of, regular wages. Unlike a salary, it’s not tied to hours worked. Companies often use stipends to help people with costs such as housing, professional development, and commuting.
The 4 main differences between salaries and stipends
It helps to know how stipends differ from salaries—and how the IRS treats each one. Here’s a closer look at the four main differences.
1. What they cover
Companies pay salaried employees for the work they perform each day. Once taxes come out, they can spend what’s left however they like—whether on household bills or leisure. Stipends work differently. Organizations will earmark them for certain costs, like wellness and education. In many cases, employees will submit receipts to show how they used the stipend.
2. How they're taxed
Employers deduct federal and state taxes directly from salaries, so employees only see the net amount in their paychecks. With stipends, employers usually pay the full amount upfront. They’re then responsible for reporting that income at tax time. In IRS terms, stipends often fall under “fringe benefits.”
3. Where minimums apply
By law, salaries must meet federal and state minimum wage standards. Because stipends aren’t subject to those rules, the amounts can vary widely. Some perks are modest, like MasterClass’s $120 monthly snack stipend for employees. Others are more substantial, like Airbnb’s $2,000 annual travel allowance that employees can put toward stays around the world.
4. Who gets them
Employees can negotiate salaries based on their experience and market value. In contrast, stipends are fixed sums distributed more broadly. Everyone who qualifies receives the same amount, regardless of hours worked or performance level—though eligibility may still depend on factors such as full-time status.
When to provide a stipend
Covering costs such as wellness programs, education, and daily expenses shows employees you care. Here are a few situations where offering a stipend makes sense:
- To expand benefits: Stipends give companies an easy way to expand their benefits package without reworking the whole system. A commuter perk, for example, helps employees cover parking and ride-share costs.
- To support development: Funding professional development through training programs and courses sends a clear message: the company cares about employee growth. This approach can improve job satisfaction and reinforce long-term commitment.
- To reduce tax burden: Some stipends qualify for employer tax advantages, such as education support under Section 127, and commuter benefits under Section 132. This makes them a cost-effective tool in compensation planning.
- To improve retention: Even small stipends show employees the company cares about more than just base pay. Helping pay for commuting or meals can build loyalty and reduce turnover.
Stipends vs. salary increases: a side-by-side look
Companies weighing salary increases versus stipends should consider the implications for management, taxes, and timing. This table outlines the main differences.
Optimize your compensation strategy with Oyster
Both salaries and stipends have value. Salaries provide consistent stability, while stipends give employers flexibility to cover needs like childcare and professional development. Often, the best approach is a mix—salaries for core contributions and stipends for added support.
Managing compensation globally adds another layer. Salaries vary by country, benefits requirements shift by market, and equity expectations differ across regions. Oyster Total Rewards helps you navigate it all with tools and expert guidance, so you can design packages that are competitive, compliant, and built to retain top talent.
FAQs
How do stipends work?
Stipends give individuals a fixed amount of money outside of regular wages. Employers issue them to cover specific costs, such as housing, training, and equipment. Recipients use the funds to ease expenses tied to their role, but they must still report stipends as taxable income.
Are stipends taxable?
Yes, stipends are generally taxable. Employers report them as income, and recipients must include them when filing taxes. Unlike certain reimbursements, stipends don’t usually qualify as tax-free benefits.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
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