When designing a competitive employee benefits plan in Canada, small and medium-sized businesses (SMEs) face a key decision: how to offer flexibility while managing costs. While a traditional benefits plan has a fixed list of covered services, many employers are now turning to Health Spending Accounts (HSAs) and Wellness Spending Accounts (WSAs) to empower employees with more choice. Understanding the distinct differences between these two options is crucial for finding the right fit for your business and team in British Columbia, Alberta, and Saskatchewan.
What is a Health Spending Account (HSA)?
An HSA is a flexible, tax-efficient account that provides a specific amount of money to each employee for a given period. Employees can use these funds to pay for a wide range of eligible healthcare expenses that are not covered by their provincial health plan or existing group benefits plan.
- Tax Benefits: One of the biggest advantages of an HSA is its tax-deductible nature. The funds contributed by the employer are a non-taxable benefit for the employee, and the business can deduct the contributions as a business expense.
- Eligible Expenses: HSAs are designed for expenses that are considered “eligible medical expenses” under the Canada Revenue Agency (CRA) guidelines. This includes a wide variety of services such as dental work, vision care, prescription drugs, physiotherapy, massage therapy, and more.
- Flexibility and Control: An HSA gives employees control over their healthcare spending. They can choose where to allocate the funds based on their specific needs and the needs of their dependents, whether it’s for a high-cost dental procedure or multiple chiropractic visits.
What is a Wellness Spending Account (WSA)?
A WSA is a non-taxable account used to cover expenses that are directly related to an employee’s overall well-being. Unlike HSAs, WSAs are not governed by the CRA’s list of eligible medical expenses and, as such, offer much greater flexibility.
- Tax Implications: The funds in a WSA are typically considered a taxable benefit to the employee, unless the expense is covered under the CRA’s list of eligible medical expenses. This is a key difference from HSAs.
- Eligible Expenses: A WSA can be customized to include a vast array of services and products. Common examples include gym memberships, fitness class fees, yoga instruction, mental wellness apps, smoking cessation programs, sports equipment, personal training, and more. Some businesses even include financial planning services or educational courses.
- Promotes Proactive Wellness: WSAs are designed to encourage employees to be proactive about their health. They shift the focus from reactive “sick care” to proactive “well care,” promoting a healthier, more engaged workforce.
Which is Right for Your Business? Health Spending Account (HSA) vs. Wellness Spending Account (WSA)
The best choice depends on your business’s goals and your employees’ needs.
- Feature: Tax Status
- HSA: Non-taxable to the employee.
- WSA: Taxable to the employee (unless expense is an eligible medical expense).
- Feature: Eligible Expenses
- HSA: Must meet CRA “eligible medical” criteria.
- WSA: Customizable and wide-ranging (e.g., gym memberships, sports equipment).
- Feature: Primary Goal
- HSA: Provides a fund for healthcare costs.
- WSA: Promotes proactive well-being and a healthy lifestyle.
- Feature: Flexibility
- HSA: Flexible within CRA guidelines.
- WSA: Highly flexible, customized by the employer.
For many businesses in British Columbia, Alberta, and Saskatchewan, the ideal solution is to offer both. By combining a core benefits plan with a smaller HSA and a WSA, you can provide employees with a comprehensive package that covers both their essential medical needs and their personalized wellness goals. This approach demonstrates a commitment to your team’s holistic health, making your business more competitive in the ever-challenging market for top talent.