05/26/2026
Stipend v. Salary—know the difference!
"Salary" and "stipend" are often mistakenly used interchangeably. Failure to understand the difference can lead to withholding errors, compliance problems, and even worker misclassification.
Salary. A fixed, recurring payment to 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. Salary payments are usually processed automatically and may or may not include time tracking.
Stipend. A fixed payment, but usually non-recurring. Instead, it is for a specific and often individual purpose, such as training, education or expense reimbursement. Accordingly, it is usually a one-time or lump-sum payment—even though it 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 a trainee’s, intern’s or IC’s 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.
On the other hand, 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 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.
Stipends for 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.
Whether are not stipends are taxable income depends on how they are structured. For details on stipend taxation and reporting, see IRS Pub. 525, Taxable and Nontaxable Income.
Depending on the workforce, the right 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.
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
When to offer stipends is as important as knowing what kinds of stipends to offer. Timed properly, stipends can represent powerful employer support at the right moments, such as onboarding, spurring career development, and adapting to a new work environment.
