What is a Spending Account?

Think of a Spending Account like a bank account. It’s an account full of money, the amount being determined by the employer, for employees to spend on eligible expenses. The amounts reset with each new benefit year, and the dollar amount can be accessible to employees on an annual, semi-annual, quarterly, or monthly basis.

It also provides cost-containment to employers, who will be able to accurately budget for their total benefits spent. For example, an employer with five employees gives each employee $1,000 annually in total Spending Account options. This means the employer will have a maximum benefits spend of $5,000/year (plus any applicable taxes and administration fees).

A Spending Account is a valuable part of a benefits package that helps control costs while giving employees flexibility. There are two different types of Spending Accounts: a Health Spending Account (HSA), a Personal Spending Account (PSA), also called Wellness Spending Account (WSA), or a combination of the two.

What is the difference between a Health Spending Account and a Personal Spending Account?

Health Spending Account (HSA)

A Health Spending Account (HSA) provides coverage for eligible healthcare expenses not covered by their primary health insurance plan. These expenses may include things like prescription medications, dental care, vision care, and other medical services. HSAs can be an additional solution to existing coverages or a benefits solution all on its own.

HSAs are a valuable part of an employee’s compensation package and are not subject to taxes. This means that they don’t increase an employee’s taxable earnings. Additionally, employers can claim the expenses associated with HSAs, including taxes and administrative fees, as deductions on their taxes, which is an added benefit.

HCSAs are regulated by the Canada Revenue Agency (CRA), who determine what is eligible for claiming.

Personal Spending Account (PSA)

A Personal Spending Account (PSA), sometimes known as a Wellness Spending Account (WSA), is a taxable benefit. This account covers a broader range of personal wellness expenses beyond traditional healthcare costs. It may include expenses related to fitness memberships, mental health services, alternative therapies, wellness programs, and more.

The CRA does not govern PSAs. This means giving employers the freedom to decide what expenses are covered. They’re a way to offer extra health and wellness benefits to keep employees satisfied and healthy. This can include things like gym memberships, childcare, hobbies, and other perks aimed at well-being.

Why Would Employers Choose a Spending Account Over Traditional Benefits?

The best advantage of Spending Accounts is the very minimal eligibility requirements. It is an excellent option for businesses who may not yet qualify for traditional, fully-insured plans which often have more stringent eligibility requirements, including the number of employees, amount of premium being collected, hours worked by employees, and more.

In addition, Spending account solutions are becoming increasingly popular due to the changing nature of the workforce. With five different generations now in the workforce, each with unique preferences and needs regarding their benefits, traditional one-size-fits-all plans are no longer effective. Millennials, in particular, are a significant portion of the workforce and are expected to dominate globally by 2025.

Recognizing the evolving needs of employees, spending account solutions were developed to offer greater access to desired benefits for working Canadians. This response reflects the growing demand for choice and flexibility in benefits plans.

If you seek a benefits plan that balances cost containment with employee flexibility, spending accounts are an excellent option. They allow employees to take control over how they spend their benefit dollars.

All Spending Accounts in Wellbytes include:

  • A pay-as-you-claim model with no monthly invoice — employers pay only for what is used by employees;
  • A completely paperless system from claim to reimbursement — save yourself the hassle of paperwork, streamline processes, and reduce the impact on the environment;
  • Access to a secure, easy-to-use platform empowering employers and employees with everything they need to know about their Standalone Spending Account, including an option for mobile claim submission;
  • Fast claims reimbursement, so employees aren’t out-of-pocket for long;
  • Supports mass employee migrations and onboarding
  • Unlimited member onboarding
  • Guide and help set HSA benefits to be CRA-compliant
  • Support Small and Large Businesses