With rising healthcare costs and greater awareness of wellness, many employers are looking for innovative ways to promote health and well-being in the workplace. One popular option gaining traction is the wellness spending account (WSA). But what exactly is a WSA, and could it be suitable for your organization? This comprehensive guide will explain everything you need about wellness spending accounts.

What is a Wellness Spending Account?

A wellness spending account (WSA) is an employer-sponsored benefit program that provides employees with a specific amount of taxable dollars to spend on items and activities that promote health and well-being. Unlike a healthcare spending account (HCSA), which covers medical expenses, a WSA allows employees to use the funds for wellness-related purchases.

WSAs are also called health & wellness accounts, lifestyle spending accounts, or lifestyle & healthcare spending accounts. Regardless of the terminology, the purpose is to incentivize employees to make purchases and lifestyle choices focused on overall wellness.

Some examples of eligible wellness spending account purchases include:

• Fitness center memberships
• Exercise equipment and fitness accessories
• Nutritional counseling
• Mindfulness apps and classes
• Massage therapy
• Acupuncture
• Personal training
• Weight management programs
• Smoking cessation tools

The list of possibilities is extensive and ultimately depends on the guidelines established by the WSA provider and employer. The key is that all expenditures must promote health and wellness in some capacity.

How Does Wellness Spending Account Work in Canada?

The mechanics of a WSA are relatively simple. Here is an overview of how typical wellness spending accounts operate:

• The employer partners with a WSA provider and establishes a set allowance or pre-determined employee limits.
• Limits can be uniform across all employees or tiered based on employee classifications. Employers have complete control over the dollar amount.
• The employer funds a master WSA account monthly to ensure funds are available when employees make claims.
• Employees pay for wellness items and services out of pocket, keeping all receipts and documentation.
• Employees then submit claims to the WSA provider, proof of payment, and any necessary documentation.
• The WSA provider reviews the claims to ensure they meet the eligibility criteria and approves Health Reimbursement Arrangements of the funds directly to the employee if compliant.
• Reimbursements are taken from the employer’s master WSA account. Any unused funds remain available for future claims within the guidelines established by the employer.
• At year’s end, any unused WSA balances revert to the employer. Employees cannot accumulate or carry forward leftover funds to future years.

The essential advantage of this structure is that it puts control over expenditures in the hands of the employer while still allowing choice and flexibility for employees. Employers can incentivize wellness while capping costs through pre-defined limits.

What Can a Wellness Spending Account Cover?

The list of possible wellness spending account expenditures is extensive, but categories generally fall under fitness, nutrition, personal development, and mental health. Here are some specific examples of items that can be covered:

Fitness

• Gym and fitness class memberships
• Personal training fees
• Fitness equipment (yoga mats, weights, treadmills, ellipticals, stationary bikes, etc.)
• Fitness gear and accessories (workout clothes, running shoes, activity trackers, etc.)
• Race registration fees
• League sports fees
• Ski passes
• Bike shares

Nutrition

• Weight loss programs/apps
• Nutritional supplements
• Nutrition classes and counselling
• Meal delivery programs
• Hydration products (water bottles, filters, etc.)

Personal Development

• Meditation and mindfulness apps
• Meditation and yoga retreats
• Stress management classes
• Professional development courses
• Professional development conferences/events
• Life Coaching
• Financial well-being apps

Mental Health

• Counselling copays
• Relationship counselling
• Addiction counseling
• Meditation and mindfulness classes

The key deciding factor over which expenses are eligible is whether it promotes health and wellness and meets the guidelines established by the employer and WSA provider. Some accounts are highly flexible, while others take a more restrictive approach. Most accounts do exclude everyday daily living expenses unrelated to wellness.

What are the Benefits of Offering a Wellness Spending Account?

There are advantages to implementing a WSA for both employers and employees.

Benefits for Employers

• Promotes a culture of health and well-being in the organization
• Incentivizes employees to make healthier lifestyle choices
• Puts a fixed cost on wellness initiatives
• Highly customizable to meet company culture and benefits philosophy
• Provides a tax-deductible employee benefit

Benefits for Employees

• Covers costs of popular wellness purchases not often included in traditional benefits
• Allows choice and flexibility to spend funds how best fits their needs
• No claims paperwork or reimbursement waiting periods
• Promotes exploration of new wellness activities and services
• Rewards employees’ health-conscious choices

Overall, WSAs provide a win-win for both parties by facilitating employee wellness in a structured manner that makes sense for employers. The accounts give employees the resources and incentive to improve their health while allowing companies to support wellness cost-effectively and controlled.

Who is Eligible for a Wellness Spending Account?

On the employer side, wellness spending accounts are suitable for companies of practically any size and across all industries. Are WSA providers equipped to handle accounts ranging from 5 employees up to 10,000+ employees?

The critical considerations for employers evaluating whether to offer a WSA include:

• Budget – What amount can reasonably be allocated towards wellness incentives annually?
• Company Culture – Does promoting health align with the company mission and values?
• Benefits Strategy – Does the existing benefits plan leave gaps a WSA could help fill?

As long as the program aligns with corporate goals, any employer committed to employee well-being can effectively leverage a WSA, regardless of company size.

Employees will have access to the WSA if they meet the eligibility criteria outlined by their employer. Most accounts extend eligibility to all employees, but employers can also implement service-based requirements. For example, employees may need to be with the company for six months before accessing the WSA funds.

Are Wellness Spending Accounts Taxable?

Yes, wellness spending accounts represent a taxable benefit to employees. Any funds employees receive through account reimbursements must be reported as taxable income on their T4.

This differs from a healthcare spending account (HCSA), which is non-taxable since eligible expenses adhere to Canada Revenue Agency guidelines. With a WSA, reimbursements are not tax-exempt since the list of covered expenses is much broader.

However, the employer contributions to fund the master WSA account remain tax deductible as a business expense. Any unused plan year-end funds that get forfeited back to the employer are non-taxable.

So, in summary:

• Employer contributions: Tax deductible
• Employee reimbursements: Taxable
• Forfeited funds: Non-taxable

The taxable nature of reimbursements is taken into account with the setup of the WSA. Limits and allowances can be set higher than with an HSA since any funds utilized will be reduced through taxation.

How Do Wellness Spending Accounts Differ from Healthcare Spending Accounts?

Learn more: Healthcare Spending Accounts in Canada

While both wellness spending accounts (WSAs) and healthcare spending accounts (HCSAs) provide personalized spending funds for employees, there are some important distinctions:

• Eligible Expenses – The main difference is that WSAs focus on general wellness while HSAs cover medical expenses defined under the Income Tax Act. HSAs are more restrictive.
• Tax Implications – HSA reimbursements are non-taxable, while WSA reimbursements are taxed as income.
• Criteria – the employer sets WSA criteria, while HSA criteria are pre-defined by the CRA.
• Limits – WSA limits can be more generous since funds are taxable. HSA limits must adhere to what is deemed reasonable by the CRA.
• Savings – Any unused HSA balance can roll forward year after year. With WSAs, unused funds revert to the employer.
• Claims – HSA claims typically require detailed paperwork. WSA claims are more straightforward with essential receipts.

The main differences are eligibility guidelines, tax treatment, allowable limits, and administrative procedures. Employers can offer one or both programs to provide comprehensive well-being support.

How Much Does a Wellness Spending Account Cost?

The cost of implementing a wellness spending account comes from the employer’s contribution to fund the master account. This will vary based on employer size, funding amount per employee, portion of employees expected to use the account, and the number of years employees can accumulate balances.

Some factors that influence WSA pricing:

• Employer Size: Accounts with 500+ employees often have lower administrative fees.
• Funding Amount: The dollars allocated per employee.
• Utilization Rate: The percentage of employees expected to use the WSA.
• Plan Design: The eligibility period, rollover allowance, and forfeiture rules.
• Administrative Fees: Charged by the vendor to manage the account.

For example, a company with 75 employees offers a $300 WSA to all staff. If they anticipate 50% utilization and the vendor charges a $3 per employee per month admin fee, the annual cost would be:

75 employees x $300 per employee funding amount = $22,500

$22,500 total funding amount + ($3 per employee per month x 12 months x 75 employees) $2,700 admin fee

= $25,200 total annual cost

The average annual cost ranges from $100 to $500+ per employee, depending on program structure. Employers can receive quotes specific to their plan design parameters to determine precise pricing.

How to Set Up a Wellness Spending Account?

The process of establishing a wellness spending account is relatively straightforward:

• Determine program objectives and parameters – Outline goals, timeline, eligibility rules, expenses to cover, funding tiers, and forfeiture rules.
• Establish a master account – Self-administered or through a WSA provider who manages account transactions.
• Select vendor – If using a third-party vendor, research administrators and find one that aligns with program goals.
• Promote program – Market the WSA to employees to ensure high awareness and utilization.
• Fund account ­– Set up monthly transfers to fund the account balance.
• Manage and optimize ­– Use data to identify utilization trends and adjust the program.

Critical tasks for employers are finalizing eligibility and expenses, allotting funds, finding a suitable vendor for outsourcing administration, and promoting the account to drive engagement.

On the employee side, the enrollment process typically entails:

• Acknowledging receipt and understanding of the coverage options.
• Log into the online portal or app to submit claims and view the balance.
• I am using the provided payment card linked to WSA for easy payments (if offered).

Ongoing tasks for employees are submitting claims, monitoring balance, and ensuring expenditures adhere to guidelines.

Wellness Spending Account Providers

A range of wellness spending account providers in the market offer varying plan design options, administration platforms, support resources, data analytics, and more. When evaluating vendors, considerations for employers include:

• Experience administering wellness spending accounts specifically
• Ability to integrate with existing systems and data
• Online portal and mobile app capabilities
• Analytics and reporting on utilization and engagement
• Approved lists of eligible expenses
• Administrative fees and pricing structure
• Account support and resources
• Reimbursement processing timelines
• Plan customization options

Some leading wellness spending account providers in Canada include:

• Wello
• Venango
• People Corporation
• Eddy Health
• Olympia Benefits

Regardless of which vendor you select, ensure they can provide the technology, service, and overall experience desired to optimize your company’s program.

Wellness Spending Account Best Practices

When establishing a wellness spending account, some proven best practices can help ensure a successful program:

• Set clear guidelines – Provide details on eligibility, qualifying purchases, reimbursement procedures, and important dates.
• Promote engagement – Market the program to employees through various channels so they understand the offering.
• Be flexible – Consider expanding categories or rules that aren’t resonating with employees.
• Analyze data – Review utilization patterns quarterly and look for ways to maximize use and ROI.
• Reward participation – Consider providing small incentives for employees who use their WSA.
• Gather feedback – Survey employees or hold focus groups to identify areas for improvement.
• Automate processes – Leverage tools and technology to streamline administration for HR.
• Highlight successes – Share examples of how employees have benefited from the program.
• Pair with other resources – Offer educational workshops, mentors, or activities that complement the account.

Optimizing a wellness spending account takes ongoing refinement and adaptation based on utilization patterns and employee feedback. HR should manage the program strategically and promote it enthusiastically to see meaningful results.

The Bottom Line

With rising healthcare costs directly impacting bottom lines, organizations must simultaneously think creatively about ways to meet employee needs and support well-being company-wide. Wellness spending accounts provide a compelling option worth considering.

These tax-advantaged accounts incentivize employees to make health-conscious purchasing decisions while empowering companies to allocate “wellness dollars” more controlled and measuredly. Employers gain valuable data on the types of wellness offerings most utilized and valued by their people.

While traditional group benefits plans have remained relatively static, wellness spending accounts represent an evolution in how organizations can encourage holistic well-being year-round in a more personalized manner. As the link between wellness and productivity/engagement gains recognition, we expect to see more employers adopting these accounts to attract talent, enrich their benefits programs, and foster a culture of health.

Article Sources

At Ebsource, our mission is to empower Canadians to make informed choices about employee benefits in Canada. We provide comprehensive, factual information so readers can make prudent benefits decisions. Our insights come from experienced financial experts to ensure our advice aligns with industry best practices. We only cite statistics from trusted official sources like Statistics Canada and the CLHIA to guarantee accuracy.

Our recommendations stem from in-depth, impartial research on the major employee benefits providers in Canada. This allows us to tailor suggestions to individuals’ specific budgets and needs. We uphold high standards of objectivity, transparency, and independence in all our content. We take pride in furnishing counsel readers can trust by drawing on credible sources and adhering to sound editorial principles. As Canada’s most reliable source for employee benefits news, we dedicate ourselves to helping Canadians make the best benefits decisions.

Wellness Spending Accounts Explained – grouphealth.ca
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