What is a Stipend and How Does it Work

Stipends are an important part of a compensation plan and used to cover basic living expenses and any work-related expenses during an internship. Organizations and companies often offer pre-determined stipends, which they use to attract top talent. Stipends are done on a case-by-case basis but can be negotiated in rare circumstances.

What is a Stipend and How Does It Work?

You may qualify for a stipend issued through your employer or school. Consider many important aspects about stipends before accepting your next internship.

What is a Stipend? 

A stipend is a fixed sum of money from a business or school to help cover expenses like housing, books, supplies, or other work-related expenses. Employers may also offer a stipend to cover additional expenses, such as health insurance premiums, meal preparation services, or gym memberships that encourage healthy habits and eating choices. Its use is up to the employer or agency issuing the stipend.

Items stipends cover include: 

• Housing 
• Books 
• Educational expenses
• Health insurance expenses 

How do Stipends Work? 

Stipends are usually lump-sum payments. This payment is also called an allowance. Many schools and organizations offer stipends to cover technology-related expenses such as laptops or electronic devices used to complete work-related tasks.

Eligibility for Receiving a Stipend 

Eligibility for stipends requires that you follow a few basic rules outlined to interns or students before they sign a contract and receive their stipends.  

• Your stipend must be used for its intended purpose (food, educational expenses, or shelter)
• You cannot be employed at another firm or company at the same time as when you receive your stipend
• You must be satisfactorily enrolled in a qualifying educational program (as required by the organization that issued your stipend)

Qualifying for a Stipend

Many positions receive stipends at the beginning, middle, or end of the year. Interns, researchers, and graduate students are a few of the types of roles which stipends are usually allocated for. Trainees and unpaid assistants also can receive stipends. These roles may be temporary or while the student completes an internship or their final year of graduate education.  

Stipend Guidelines

Stipends cover basic costs for an employee and, in this instance, an organization is not required to pay the employee a minimum wage which is generally the case for all full or part-time employees. Because there is no requirement for employees to receive minimum wage, a stipend may end up paying less than if they were receiving a salary or hourly pay. 

Stipend Tax Considerations

Stipends do not count as earned income, and as such, taxes are typically not withheld. This can be an issue if a stipend is large enough to trigger basic tax liabilities (including Social Security and Medicare taxes).

Remember to: 

• Report your stipend on your tax return. 
• Stipends may be recorded as “non-qualified fellowships” or “internships.” 
• Speak with a local tax professional to ensure you’re including the correct amount on your tax return.

Stipend vs. Salary

Salaries

• Salaries are compensation for work employees complete. 
• Payment for hours or services completed for an organization. 
• Pay schedules are typically bi-weekly or monthly. 
• Subject to minimum wage laws. 

Stipends  

• Fixed amount paid to interns, graduate students, and non-salaries employees.
• Hours worked can be higher or lower than the value of the stipend.
• Not subject to minimum wage requirements. 
• Taxes are not withheld from a stipend (recipients are responsible for reporting and paying their taxes). 

Can You Negotiate the Terms of a Stipend? 

Depending on which company or organization you contract with, you may be able to negotiate the terms of your stipend and the amount. 

To negotiate effectively, be sure to: 

• Research other organizations’ stipends and qualifications for those looking to receive them. 
• Be sure your current stipend is enough to cover your basic living expenses.
• Examine your specific situation and decide whether you need to negotiate a different stipend amount.
• Plan and have reasons why receiving an alternative (or higher) stipend would work best for the organization, and your specific situation. 

Stipends Summarized

Stipends are important for those interning at a company or finishing their last year of graduate education. If you were offered a stipend, ensure that it is competitive with comparable organizations in your industry. 

Key Takeaways

• A stipend is a fixed sum of money provided by a business or school to help you cover expenses such as housing, books, supplies, or a host of other work-related expenses.
• Students, graduate assistants, and interns are the roles typically best suited to receive stipends. 
• Stipends are paid at specific points within the year whereas salaries are paid biweekly or monthly.
• You may have the opportunity to negotiate your stipend.

(Reporting by NPD)