what is a stipend payment meaning, different kinds with instances

Knowing what is a stipends can help you know what type of payment you are receiving at any given time. This is not just a formality but it will also help you to know whether or not you should pay tax on this sum. In this sense, this type of payment is not a salary, as it is a form of compensation for a job.

In this article, with our help, you will know if are stipends taxable and how it is different from a salary. Moreover, you will know what are the types of stipends that exist and some examples so that you can understand them better. Let us see:

1. What is a stipends and how does it work?

2. Types and considerations regarding the stipend pay

3. Take a look at other features of stipends

1. What is a stipends and how does it work?

what is a stipends

Do you want to know what is a stipends? The answer is very simple, it is a payment to certain people for services rendered, other work, or during training. In addition, an employer delivers this type of payment, in some cases, in substitution of a salary, although they can add to the latter. It also allows you to offset some expenses and, most of the time consists of a fixed amount.

Stipend money is generally for apprentices, students, interns, and others. Moreover, those who receive a stipend must consider the tax implications, as this payment is an income but not immediately taxable.

1.1 How do stipends work?

Since you know what is a stipend, it is time for you to learn how this type of payment works. In this case, the payment is a fixed sum, and also, in general, the payment is global. In addition, the issuer of this payment, which is sometimes called compensation, makes it daily, weekly, or monthly. Therefore, the companies offer this payment as compensation for training instead of a salary or outstanding salary.

Thus, what is a stipends involves people doing work that is unpaid and helps cover living expenses. Hence, people receive a stipend, rather than payment for services, to support them financially. Stipends can include other benefits, such as higher education, travel, food, housing, and more.

However, associations or organizations may not use the financial stipend to hire students to replace staff. In addition, the students must be the beneficiaries of the training or employment and not the companies. However, this payment may be less than the minimum wage but must be used exclusively to pay apprentices.

On the other hand, no established rule defines the stipend that a company must pay. The stipend depends on the task that the person who receives it must perform or the expense that it compensates. If you are wondering if it is stipend taxable, you should know that most of them are, so you will need to pay the tax.

2. Types and considerations regarding the stipend pay

Once you know what is a stipends, you must consider certain aspects related to this type of payment. One of these characteristics is that the person who receives the stipend keeps all the earnings. In this case, it is because you do not get any deductions, such as for health insurance or Social Security.

However, within the stipend definition, it counts as taxable income, so you will need to set aside some of your earnings. In addition, the people who receive this payment must take into account how they are classified. For example, companies must classify students and interns as such.

That is, if the company identifies them as employees, the stipend may be taxable and you will not receive the full earnings. However, if this is the case, the person must receive overtime pay, as well as minimum wage. Likewise, employees must take care that the company considers them apprentices, as this can complicate their payment.

You should also know that not all monthly stipend is taxable, as some are only after a certain amount. Thus, you should consult with a tax advisor about the implications of the stipend you receive.

2.1 Types of stipends

As we mentioned when defining what is a stipend payment, these are not hourly payments like a regular salary. Companies use these as a cheaper option to pay interns or offset some costs. In this case, the compensation is related to the costs of performing certain services.

In addition, the amount or regularity of the stipends varies according to the company or organization that pays it. For example, some companies use stipend payments to cover some expenses, such as travel, food, and more. However, there are several types of stipend that a company can pay.

2.1.1 Spending stipends

As we mentioned when answering what is a stipends, this can be used to cover specific costs and expenses. In this way, some companies can pay a stipend to cover computer rentals for college students. You can also pay a transportation stipend for those who travel to the company for training.

2.1.2 Academic research stipends

The stipend meaning also includes a payment to researchers, academic institutions, or other organizations to help them in their projects. In this case, these stipends, like grants, may be provided by third parties who want to support particular research. Some foundations or entities may also offer this type of payment to support research work and projects.

2.1.3 Job training stipends

Within what is stipend pay, there are those related to the training that employees wish to receive are also included. In this way, they seek to increase their knowledge, improve their work or develop professionally. Hence, an employee can enroll in some training course or the like and the employer provides reimbursement.

2.1.4 Health insurance stipends

Employers are not required to offer health benefits to interns but may offer a stipend for it. In this way, they will be able to receive a stipend check to help them cover health insurance costs. Likewise, they will be able to pay the premiums of coverage insurance.

2.1.5 Wellness Program Stipends

Many companies offer their employees stipends as part of health and wellness to promote them. In this case, the cats can be several but employees can use them for physical conditioning. For example, many companies offer payment for gym memberships, to pay for personal trainers or wellness programs.

2.2 Real examples of stipends

Today there are many examples of this type of payment, which help you understand how does stipend work. In general, we can mention some general examples of this type of payment:

Many funds offer stipends to support people involved in advanced research. These investigations can be of public interest or also focused on academics. Thus, these stipends or subsidies can include translations, books, articles, digital publications, or scientific reports.

In addition, the destination of these funds is not simply focused on the collection of data but on the analysis and interpretation of the same.

On the other hand, health stipends are the ones that seem to be growing in popularity among businesses. For example, an international technology company offers its employees a stipend of up to $1,200 per year for general welfare expenses. In this case, they include gym expenses, fitness, financial advice, debt management, and more.

In addition, the company reimburses the employee for the cost of services, as well as medical, dental, or vision care benefits.

Similarly, one of the best-known telephone and computer companies offers professional development stipends. In this sense, they pay or reimburse their employees for education expenses related to the focus of the company.

2.3 We show you the difference between stipend income and a salary

Now that we have properly defined what is a stipend pay, we can differentiate it from a salary. To begin with, the salary offer by a company is a fixed payment that a worker receives. In contrast, a stipend is not compensation for work but monetary support for various reasons.

For example, it includes travel expenses, payments for the training period, or to cover basic living expenses. In addition, a relevant difference is that the stipends consist of a payment of less than one minimum wage. Also, the state does not regulate these stipends and they are entirely at the discretion of the employer.

3. Take a look at other features of stipends

what is a stipends

In addition to the things mentioned above, you should also be aware of other features of stipends. In this way, we expand what does stipend pay mean to have a clearer concept.

3.1 Does a stipend count as income?

These payments are not wages, so businesses cannot withhold taxes from the stipends provided. However, many times these stipends are taken as income, so you may have to pay taxes. Therefore, you should check with your employer about the tax implications of the stipend.

3.2 What is the frequency of payment of stipends?

The frequency of payment of a stipend varies according to the company but also the circumstances. However, this payment can be made by an employer on a weekly, monthly or annual basis, although the latter frequency is not common. This is because it is a form of support and the recipient may need the payment as often as a salary.

Also, if you want to know more about this and other issues related to employment, you can easily contact us. We are a platform where you can find the best job opportunities in the Middle East.

Kate Williams

Kate Williams
Kate is the Global Strategy Director at Connect Group. She is specialized in company formation, international business expansion and employee relocation. She studied in Southampton (United Kingdom) and moved to the UAE in 2014.