In this article, we’ll discuss what a stipend is, what it’s used for and how it differs from a salary.
What Is a Stipend?
In basic terms, a stipend is a fixed amount of money paid to an individual for a specific purpose, namely to cover expenses and/or living costs associated with work or study. Not to be confused with a salary, a stipend may only be offered in certain circumstances. If awarded by a business, the employer must be able to demonstrate that the recipient of a stipend is undertaking work as part of an educational experience and that the company is not unfairly benefiting from the agreement. The most common type of stipend is that given to those embarking on a trainee program or internship. Instead of being placed on the official payroll (for example, receiving a salary or wage), the trainee or intern is offered a predetermined sum by way of financial support. This typically goes towards food, travel and accommodation expenses, though some stipends may extend to equipment, resources and materials, if needed. It may be paid in one lump sum or at weekly/biweekly intervals and is typically much lower than remuneration offered to official employees. In these circumstances, a stipend is not designed to replace a salary. Under rules governed by the US Department of Labor, employers can only offer stipends if the work undertaken covers specific duties for a set period and contributes to the individual’s educational development. If tasks are completed outside of the agreed remit, or the employer is deemed the main benefactor of the working arrangement, the intern or trainee must be classed as an official employee and treated as such. Another common type of stipend is one offered by educational institutions to assist students with further study. Again, this may cover living expenses, material costs or both. Some employers also offer salaried staff stipends as a form of additional employee benefits or to offset costs associated with duties outside of their day-to-day roles.
What Is the Purpose of a Stipend?
Our stipend definition covered the most common use of this type of payment – a form of financial support given to those pursuing work-based education. However, there are multiple types of stipends offered by different organizations for different purposes:
Stipends for Academic Research
Schools, universities and other academic institutions often offer stipends to those undertaking research projects. For example, a PhD student may receive a stipend to cover their living costs while they complete their research or they may be offered a fixed sum to contribute towards project costs. Strict criteria apply to the provision of stipends in these cases and recipients are usually required to provide evidence of where the money will be spent, as well as proposed research outcomes and associated benefits.
Stipends for Professional Training
If you’re already working for a business or organization, you may find some employers are willing to award a stipend for advanced training. Money to cover classes, materials and certifications may be offered on top of your salary provided you can justify the expense and demonstrate how further education will assist with your career development and make you a more valuable employee.
Stipends as Employee Benefits
Some employers choose to provide salaried staff with additional compensation in the form of stipends. These are most commonly used to contribute towards health insurance costs or to encourage employee wellbeing. A company may opt to offer stipends for gym membership or other wellness activities.
Stipends to Cover Expenses
These may be offered to students, interns and employees alike. As an employee, you may be asked to perform tasks outside of your usual duties, like attend a conference or travel for a business meeting. In these circumstances, your employer may cover associated costs with a stipend. As a student or intern, you may receive a stipend to offset a specific expense, like computer equipment, provided it is a necessary tool for you to perform your duties. Where a stipend is offered as part of a compensation package for an internship, apprenticeship or trainee program, the company responsible will usually base the amount on the standard costs of living in that area. Before you accept an offer, it’s important to calculate precisely what you’ll need to maintain a standard of living that allows you to focus fully on your educational endeavors. Other types of stipend, such as those for academic research or those offered in conjunction with a salary, will be down to the giver’s discretion entirely.
What Is the Difference Between a Stipend and a Salary?
As we mentioned earlier, a stipend should not be confused with a salary. There are several differences between the two, which we’ve outlined below:
Amount
The major difference between a stipend and a salary is the amount offered. Where a stipend is given for a trainee position or internship, it does not fall under regulations for minimum wage and as such, is often much lower than a salary. In these cases, a stipend will typically cover basic living costs and will not provide the recipient with any disposable income, unless their living expenses are minimal – for example, if they still reside with parents and are not subject to board.
Associated Responsibilities
As a salaried employee, you’d be expected to have the skills and experience necessary to carry out certain duties and would be contractually obliged to fulfill those duties until either you or your employer legally ends the working agreement. By contrast, if you’re in receipt of a stipend, it’s likely because you want to gain the experience that makes you more qualified for a salaried position. In providing this form of compensation, an employer is allowing you to develop professionally whilst lessening the financial strain of an unpaid internship.
Tax
Though a stipend is considered taxable income, there are some key differences here when compared to a salary. First, only the proportion of your stipend used for living costs is subject to tax. As an example, if you receive $4,000, $1,000 of which is used for educational resources like books and equipment, you’ll only pay tax on the remaining $3,000. You’ll also only pay federal and (where relevant) state taxes, as stipends are not subject to Medicare and social security taxes. Another key point of difference is that it is not an employer’s responsibility to withhold taxes on your stipend, unlike with a salary. This means you’ll need to track your stipend, declare it as income and pay any associated taxes yourself.
Negotiation
When you’re in full-time employment, you’re in a position to negotiate your salary based on performance and development. This is not the case with a stipend. Since a stipend is offered to assist you with your professional education, it remains a fixed amount throughout your agreement. Some organizations may be open to negotiating a stipend before you accept their offer, but generally speaking, employers use stipends as a way of lowering costs associated with internships and have little room for maneuver.
Final Thoughts
In a tough job market, gaining solid experience can give you a major competitive edge. As such, internships and training programs are a great way to get your foot in the door and gain the skills you need to climb the career ladder. The downside, of course, is that in pursuing professional development, you’re often sacrificing your income, even if for a short period. A stipend may not be comparable to a salary, but it does alleviate the financial stresses many people face when seeking real-world experience. If you decided a stipend is a fair form of compensation for a short-term appointment and that the benefits far outweigh the drawbacks, it’s important to ensure you have a written agreement in place before any offer is accepted. That way, both you and the organization offering you experience will understand your responsibilities and are fulfilling all requirements under stipend regulations. It will also ensure that you have all the information you need to plan your finances accordingly, allowing you to focus wholeheartedly on your professional development.
