If you’ve been around the HR block a few times, you may think you know all there is to know about benefits. Even If you’re a small business and you’re building an HR function from scratch or evaluating your first dedicated benefits strategy, you’ve likely heard about HSAs and FSAs. But there’s a newer player gaining serious traction: Lifestyle Spending Accounts (LSAs). And according to recent data, they might be exactly what your organization needs in 2026.
What Are Lifestyle Spending Accounts?
Think of an LSA as a flexible, employer-funded account that helps employees cover the expenses they encounter in daily life. Unlike the more rigid HSAs and FSAs that focus exclusively on healthcare, LSAs cast a wider net and cover everything from gym memberships and mental health services to childcare, groceries, professional development, and even pet care.
Here’s what makes them different: you design them. As an employer, you decide:
- How much to contribute (there are no IRS-mandated caps)
- Which expense categories qualify
- Whether unused funds roll over or follow a “use it or lose it” model
- How and when funding occurs (monthly, quarterly, annually)
The catch? Most LSAs are post-tax benefits, meaning employees typically pay income tax on distributed funds. However, certain categories – like tuition assistance up to IRS limits or required cell phone reimbursements – can qualify for tax-advantaged treatment.
Why LSAs Appeal to Employers
The Compt 2026 Benchmark Report reveals a striking trend: 64% of their customers with LSAs now offer one that is all-inclusive – and that is up from 55% in 2024. That’s on top of research from Mercer that found that 9% of their survey respondents offered LSAs in 2022 and it went up to 13% in 2023. This isn’t just feel-good HR theater anymore – it’s strategic!
Here’s why employers are leaning in:
- Cost control: You only pay for what employees use. With a reimbursement model, unused funds stay with you, helping maintain predictability while still offering competitive benefits.
- Administrative simplicity: Rather than juggling separate wellness stipends, commuter benefits, professional development budgets, and meal allowances, you consolidate everything into one program. One system, one set of rules, one reporting structure.
- Competitive differentiation: Employers offering an easy to use and flexible LSA position themselves ahead of the curve for talent attraction and retention.
- Ideal for SMBs: Small companies offer 2.6x the per-employee funding of large organizations.
- Measurable impact: Because LSAs are flexible, they absorb shifting employee needs without requiring constant program redesigns. Quarterly funding saw 85% utilization versus 52% for monthly programs – showing that when you fund matters as much as how much.
What Employees Want
The employee spending data tells a compelling story about what people genuinely need versus what we think they want.
Nearly 1 in 10 LSA dollars now goes to grocery retailers. Yes, groceries. Six of the top 10 vendors offer grocery or household essentials. This isn’t about perks anymore; it’s about financial stability during sustained economic pressure.
Wellness remains strong (85% participation when embedded in LSAs), but it’s evolved beyond gym memberships. Employees are directing wellness funds toward:
- Mental health services and therapy
- Nutrition and supplements
- Preventive care not covered by insurance
- Recovery tools and equipment
And here’s the flexibility advantage: the same employee might use their LSA for groceries one month, a gym membership the next, and childcare support during a family emergency. The benefit adapts to life as it happens – not as HR designs policies around it.
The Professional Development Pivot: From Conferences to AI Tools
One of the most striking findings from the Compt report centers on professional development spending because it signals a fundamental shift in how employees are approaching skills growth.
25% of all professional development expenses in 2025 were for online tools an d productivity software, and here’s the nuance: 62% of those expenses were AI-related – think ChatGPT subscriptions, Cursor, Grammarly, and other hands-on applications.
This signals a move away from the traditional professional development model of conferences, formal courses, and credentialing programs – although those are still occurring of course – and toward continuous, embedded learning. Instead, employees are essentially building their own personal “AI tool stack” that helps them upskill in real time – experimenting and adapting as job expectations evolve rather than waiting for top-down training initiatives or corporate funding to use a specific tech tool.
This is a fascinating shift as it demonstrates that your employees don’t want another learning management system or even an annual conference budget. Raher, they want the autonomy to adopt the tools that make them more effective right now – and LSAs give them that flexibility without requiring you to predict which specific platforms or subscriptions will matter six months from now.
What This Means for Your Business
LSAs offer a pragmatic foundation for any company’s benefits program; they scale across different employee types (hourly workers show 89% utilization!!! – higher than many salaried programs), work globally, and require minimal ongoing administration when run through the right platform.
Start with these questions:
- What scattered stipends or reimbursement programs could we consolidate?
- Are we solving for today’s pressures (childcare, groceries, mental health) or yesterday’s perks?
- Can our current systems handle flexible benefits, or are we building on infrastructure that will create manual work?
The data is clear: employees want flexibility, employers want predictability, and LSAs deliver both. The companies making this work aren’t the ones with the biggest budgets – they’re the ones who designed benefits around how their employees live and work.
Download the Compt 2026 Lifestyle Benefits Benchmark Report here.
