“Salary” and “stipend” are often mistakenly used interchangeably, but they have very different meanings. Failure to understand this can lead to withholding errors, compliance problems. and even worker misclassification.
Knowing the difference between these payments helps ensure fair compensation and correct withholding.
Salary. A fixed, recurring payment employers pay full- or part-time employees each pay period in exchange for their ongoing service, regardless of hours worked. Salaried employees are generally exempt from OT pay requirements under federal law.
Calculation of salary starts with an annual amount that is then divided by the number of regular pay periods—weekly, biweekly, semimonthly or monthly—and taxed through withholding of FITW, FICA, SITW, and possibly retirement plan contributions.
Salary payments are usually processed automatically and may or may not include time tracking.
Stipend. Also a fixed payment, but usually non-recurring and for a specific and often individual purpose, such as training, education or expense reimbursement. Accordingly, a stipend is usually a one-time or lump-sum payment—even though the payment may be paid at regular intervals, such as weekly or monthly.
- Employers typically offer stipends:
- to support the cost an employee incurs for development or certification;
- to offset trainee, interns. or IC expenses;
- to encourage participation in wellness, transportation or remote-work programs;
- to provide flexibility in benefits because they do not require adjusting base pay.
Example: A resident in a hospital, although a student still in training, is a licensed physician working full-time, so compensation is salary.
However, interns, fellows, apprentices, trainees or volunteers in the same hospital may not be employees as defined by federal law, so their pay is a stipend: it is not paid for ongoing service at a set amount but covers costs associated with professional development, which can include housing, food and transportation.
Stipends paid to workers who are not defined as employees under federal law may amount to less than the minimum wage because stipends are not based on hours worked.
Stipends are often used to attract and invest in individuals whom employers hope will become employees, often for roles that are part of a broader program, and to pay for government-regulated training programs.
Whether are not these payments are taxable income depends on how they are structured.
Stipend v. salary chart
The following table offers your company or client a quick way to choose which kind of payment best fits its workforce when either kind may be used:
| Salary | Stipend | |
| Definition | Fixed annual amount for ongoing work | Fixed payment for a specific purpose. such as education, training, or living or housing expense |
| Worker classification | Employee | Apprentice, trainee, intern fellow—and sometimes employee |
| Payment frequency | Weekly, biweekly, monthly or semimonthly | Generally one-time or period, but can be a few times or periodic |
| Tax treatment | Subject to all employment taxes | May be subject to all employment taxes and reported on the W-2 (for employees); or not subject to withholding and reported on a 1099 (for apprentices, trainees, interns,
fellows, or ICs) |
| Purpose | Annual compensation for ongoing work or service | Reimbursement or prepayment for education, training, living or housing expense |
| Processing | Payroll system | Expense reimbursement or stipend plan—for employees, payroll system |
Depending on your workforce, the right types of stipends can boost worker satisfaction, strengthen retention of trainees, apprentices, interns, fellows or ICs, and sometimes even employees, and make your firm a place known for investing in its people.
To recap, stipends worth considering include:
- Education or training stipends that cover tuition, certification or professional development.
- Wellness stipends that cover gym memberships, fitness classes, or ergonomic equipment, all of which encourage a healthy lifestyle.
- Technology or remote work stipends that offset internet, phone, or the cost of setting up a home office for remote and hybrid workers and teams.
- Transportation stipends that help cover commuting expenses, such as the cost of public transit passes, parking or fuel.
- Meal or living stipends that provide support for employees’ off-site training or temporary relocation.
When to offer stipends
Knowing when to offer stipends is as important as knowing what kind. Timed properly, stipends can represent powerful employer support at key moments, which may include, onboarding, spurring career development, or adapting to a new work environment.
For details on stipend taxation and
