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Financial stress might be costing your company more than you imagine. The most recent research from PricewaterhouseCooper notes that 60% of employees are experiencing financial anxiety, and those anxious employees are five times as likely to say that their money issues have been affecting their work performance.
What can you do to help alleviate some of that burden? There are two different types of employer-sponsored savings accounts that can provide relief from anxiety and promote financial wellness: health savings accounts and emergency savings accounts.
A health savings account (HSA) is a type of savings account that can be used by certain people to cover specific healthcare-related expenses.
These are tax-advantaged accounts, which means that they offer some kind of tax benefit. In the case of an HSA, savers can deposit pre-tax earnings into the account, and they don’t have to pay taxes on the money when they withdraw it to pay for an approved expense. This can help account-holders save money (sometimes a significant amount) when paying for certain health care, vision, and dental costs.
Another perk to an HSA is the ability to invest it. Once the account balance reaches a specified minimum amount (set by the HSA provider), then the saver can choose to invest it in money market funds, stocks, or other investment opportunities. Over time, account-holders can grow their savings.
Only people who have a high deductible health plan (HDHP) can open an HSA. The deductible is the amount of money that must be paid by the insured person before their insurance plan will start to pay for coverage. In 2023, the IRS has set the minimum annual deductible for self-only coverage at $1,500, and the maximum at $7,500. For family coverage, the minimum is $3,000 for the annual deductible, and the maximum is $15,000.
An HSA is intended to help offset the cost of high-deductible health insurance, and there are also limits around how much account-holders can deposit into the HSA. This amount is capped depending on how many people are covered by the HDHP. If you have self-only HDHP coverage in 2023, then you can contribute up to $3,850 to your HSA. If you have family HDHP coverage, you can contribute up to $7,750.
You can’t use an HSA to pay for insurance premiums, and there are specific guidelines around which health expenses can be covered with HSA funds.
Employers can set up HSAs for employees, who determine how much they would like to contribute to the account from each pay period. The money is deposited into the account before taxes are taken out, and employees will not need to pay taxes on the contributions when they use the HSA for an approved expense.
If your company is offering an HDHP, then providing an HSA alongside it is a nice benefit for your employees who use the HDHP — but you are not obligated to connect employees to an HSA. Employers can contribute a set amount to employee HSAs or make “matching” contributions, which can incentivize participation and help maximize contributions, but the total contributions must remain within the IRS limits.
Another nice thing about an HSA compared to some other types of savings accounts is that they carry over any remaining balance from the previous year into the next. So employees can continue to accrue savings in their HSA year after year. When moving to a new company, employees must roll over their existing HSA into a new provider, or else pay tax penalties on any money withdrawn that’s not redeposited into a new HSA.
An emergency savings account (ESA) is any type of savings account that’s dedicated specifically for emergencies. This can be an account that individuals set up on their own and contribute funds toward, or it can be an account that an employer helps sponsor in order to foster better financial well-being among employees.
Financial experts overwhelmingly recommend that everyone have some kind of savings account for emergencies only, one that contains between three and six months’ worth of your household’s expenses. Establishing an ESA can alleviate ongoing financial pressure: paying for an emergency with a credit card or a payday loan ultimately drops the borrower in a deeper financial hole, and borrowing against long-term savings accounts (such as retirement accounts) undermines those savings goals and extends the amount of time it will take to eventually reach them.
An ESA can cover any type of emergency. This might include a health, dental, or vision expense that could also be covered by an HSA, but ESAs are not restricted in the same way. There is no limit around how much money an employee can contribute to an ESA on an annual basis, so they can feel free to save as much as they think they need — and then some!
Savers can use money in an ESA to pay for:
The money in an ESA is deposited post-tax, so there are no tax implications involved in taking money out of an ESA and spending it. A good ESA is the same as liquid cash in the sense that borrowers can immediately access the money in the account, without applying for any hardship withdrawals or making any special requests. Unlike an HSA, an ESA does not offer investment opportunities for account-holders other than simple interest.
Providing an ESA as part of the employee benefits package is becoming an increasingly popular and attractive way to support workers and recruit talent. With platforms like SecureSave, employers can simplify onboarding and offer contribution matching or milestone incentive payments for signing up and meeting certain savings goals.
Offering both an HSA and an ESA to employees can be a smart move because they have some notable differences.
Anyone can open an ESA, but only people who are currently insured with an HDHP can open an HSA. And while an ESA can be used for any kind of emergency, including an unexpected healthcare expense, the funds in an HSA can only be withdrawn and used for specific expenses.
Money flows into an HSA pre-tax, while any money deposited in an ESA is post-tax. If a saver withdraws money from an HSA for an approved health, dental, or vision expense, then they will not have to pay taxes on that money when it’s withdrawn, making an HSA a good option for savers who know they will have specific covered medical expenses. On the flip side, the taxes on any money saved in an ESA have already been paid, and savers can withdraw that money anytime and use it wherever it’s needed most.
A savings account is only helpful to employees if they know about it and contribute to it! To maximize engagement and educate your employees about the benefits available to them, consider following these tips:
Whether you offer an HSA, an ESA, or both to your employees is going to depend on a number of variables, including whether you’re providing an HDHP as an option.
That said, if your goal is to minimize financial stress and promote focus and wellness in the workplace, then providing an ESA alongside or even in lieu of an HSA can be a thoughtful gesture. With fewer restrictions on how it can be used, no account limits, and the potential to offer incentives, an ESA can be a fantastic way to financially empower and support your staff.