1. HR Glossary
2. Stipend

Stipend: Meaning, Calculation, Types, and Definition

A stipend is a type of pay offered to someone for services rendered, other employment, or while undergoing training. Organizations can compensate individuals for their services in addition to or instead of conventional salary. One of these choices is this payment, which reimburses employment and training-related expenses.

Learning about this sort of payment allows you to understand why and when businesses may provide it. This blog will discuss what a stipend is, who is qualified to get one, and the various types available to assist in professional or educational growth or exploring a new path.

What is a Stipend Definition?

A stipend is a recurring payment made as a wage or allowance. It is typically paid to employees for various purposes, such as living expenses, education, research, or work not performed under regular employment arrangements.

These can be paid monthly, quarterly, or annually, depending on the individual circumstances and agreements between the payer and the benefactor. The amount can also vary. These payments are frequently paid to trainers, interns, students, apprentices, and clergy. Individuals should understand the tax implications, which count as income but are not immediately taxed.

How Does Stipend Work?

A stipend payment is distinct from a salary in that it is not remuneration for services rendered or hours worked. A salary is typically paid to an employee through regular payroll, whereas a stipend is intended to cover specific expenses.

The employer typically determines this allowance, and no minimum pay restrictions apply. When calculating this payment, they usually consider the cost of living and other expenses, as well as the sort of management training or profession. If this amount does not cover the expense of specified basic needs, you may be able to negotiate a higher allowance.

For example, when an unpaid research assistant regularly uses public transit to get to an academic institution, they can explain the circumstances to the employer and present a solid rationale for increasing the payment.

If the worker meets the qualifications for this compensation, the amount provided is up to the employer. There is no minimum amount for this payment, which may be less than the minimum wage per hour worked. Also, it does not count as wages obtained; thus, no Social Security or Medicare taxes are withheld. This means that the employer will not withhold taxes. However, it is considered taxable income, so budget for the taxes paid at the end of the year.

Ensuring that the stipend is noted on the tax return is critical. It may be referred to as a "taxable scholarship," "non-qualified fellowship," "taxable grant scholarship," or another similar term. Speak with a local tax professional about the forms for these earnings and how to fill them out correctly.

How to Calculate Stipend

Unlike salaries or wages, they are typically computed without regard to hours worked or job performance. The method of calculating these payments might vary depending on a variety of factors:

Program Budget

These are decided mainly by the amount of money available to the program or organization that provides them. The team members can divide the budget based on the requirement to ensure everyone receives financial support.

Experience and Education Level

These are not paid. Many companies may increase amounts based on the recipient's experience or education level, recognizing that advanced skills and knowledge add value.

Cost of Living

Sometimes, subsidies are based on the cost of living in the area where the person will be working or studying. These concerns range from housing to food, transportation, and other basic requirements.

Duration of Program

The length of the program frequently determines the amount. A more extended internship, for example, may provide a higher overall pay, which is paid out in installments throughout the internship.

Program Guidelines

Some programs have established criteria or procedures governing amounts. For example, specific fellowships and academic awards have defined payment rates corresponding to the educational level or research activities.

Market Standards

Organizations may use the payment levels of other programs in their business or academic field as a benchmark to ensure that the amount is fair and competitive.

Funding Source Restrictions

Grants or outside sources of funding that give money may have limits on how much can be awarded and for what uses, which can influence the calculation process.

Type of Work or Research

The scope and complexity of the work or research may influence the amount, with more demanding or specialized projects potentially justifying a higher pay.

Tax Regulations

In some locations, tax rules governing them may impact their computation, mainly if the pay must be set to minimize the recipient's tax burden.

Part-Time vs. Full-Time Engagement

These may be changed depending on whether the individual participates in the program full-time or part-time employment.

Expense Coverage

If the amount is meant to cover certain expenses, such as travel, supplies, or tuition, it may be estimated to be as close as possible to those costs.

Types of Stipend

Educational

These are awarded to students or individuals conducting academic research or internships. They are intended to support living expenses or research fees while allowing students to focus on educational activities without financial constraints.

Training

It is provided during apprenticeships or on-the-job training to help cover daily expenditures while the trainee learns a trade or skill.

Fellowship

Awarded to fellows in academic or research institutes to support their studies, research, or involvement in educational activities.

Researcher

Academics are compensated to help them pay for their studies. This can cover material costs, research-related travel, and personal living expenses.

Volunteer

Some volunteers receive minor compensation as a symbol of appreciation for their efforts, which can be used to pay for transportation and meals.

Travel

These are intended to subsidize travel costs to conferences, workshops, or work-related vacations.

Clergy

These are payments made to clergy or missionary workers to support their living expenses while serving in their vocations.

Graduate

Universities or colleges frequently pay graduate students monetary compensation for teaching or conducting research in their academic programs.

Living

A general word for any money intended to cover the costs of housing, food, and other essential living expenditures while working or training.

Performance

These are recurring payments to individuals, such as artists or athletes, to support their training and performance commitments.

Healthcare

Payments are made to healthcare trainees or interns, such as medical or nursing students, to help them obtain hands-on experience in their field.

Internship

Interns are paid to cover their expenses during an internship, which generally gives them practical experience in their field of study or professional interest.

Special Considerations Under Stipend

Employees receive this, there are a few things to consider. One of the primary benefits of this sort of pay is that it can keep what is earned, depending on your work situation. Depending on the situation, taxes may not be withheld to pay for Medicare and Social Security. As per a report, Indian internships make an average of ₹5333 per month as internship income.

However, if the amount exceeds, it is considered taxable income. This requires beneficiaries to set aside a percentage of their earnings. Recipients should be cautious about how their payments are labeled. Students and interns should be classed accordingly. If the employer recognizes their worker as an employee, the stipend may be taxed, and they may not receive the whole amount.

In this scenario, employees are entitled to the minimum wage and applicable overtime compensation. However, employees should guarantee that they are not treated as trainees, which could lead to issues with their compensation.

How is Salary Different From The Stipend?

A salary is a fixed sum paid for labor, usually once a year. On the other hand, a stipend is not considered pay for work but rather monetary assistance for various reasons, such as traveling expenses during a training period or certain living expenses.

Stipends are often smaller in amount. As a result, they are frequently lower than the minimum wage and are offered at the employer's discretion rather than being controlled by the state. These are not considered wages but can be considered in addition to a salary. They are intended to compensate for expenses incurred while performing a particular job for an organization.

These are often used to compensate employees who perform extra labor. For example, a public high school teacher may be paid to coach the football team or direct the school play.

Conclusion

Stipends are monetary contributions intended to cover expenditures such as food and lodging for people who do unpaid work. This can apply to students doing internships or other types of trainees. These payments are also provided to employees as supplementary perks to cover certain expenses, which employers grant to make the position more appealing to possible candidates.

Stipends do not have to be complicated; nonetheless, many employer payment plans are. If you have to individually track, approve, and refund each team member who uses their payments, you will require a full-time team member to run the program. So, to avoid that tedious process, use the factoHR payroll management system. Schedule a demo with us today!

FAQs

How Often Are Stipends Paid to Employees?

The frequency at which they are paid to employees varies depending on the institution and conditions. They might be paid weekly, monthly, or yearly. They are usually not given out yearly because they are regarded as a source of assistance, and the individual may require the money throughout the year. It is usual for them to be paid as frequently as an employee's salary.

How Do Stipends Work?

People often receive a stipend as a fixed sum, which is commonly paid as a lump sum. This type of compensation is sometimes called an allowance and is usually provided daily, weekly, or monthly.

How Much Pay Is Usually Received?

These payments are generally low, although they vary depending on the organization and the expenses involved. Organizations consider several factors while determining levels, including the cost of living in the locality and task-related expenses.

Do Stipends Get Taxed?

Employers do not deduct income taxes from salary because it is not considered a salary. Employees do pay taxes on their earnings, which may include salary. According to Section 17(1) of the Income Tax Act of 1961, salary is defined as wages, pensions, gratuities, fees, commissions, or profits received instead of salary, as well as advance salaries and payments for creditable leaves accrued by an employee.

Who Is Entitled To Get A Stipend?

Only certain types of jobs qualify an individual for a payment. Individuals working as interns, researchers, assistants, junior associates, or trainees are eligible for this. However, this does not imply they cannot earn full-time pay from these positions. In most circumstances, businesses prefer to compensate persons working in these roles with a payment.

Is Stipend A Fixed Payment?

Stipends are fixed, regular payments made to individuals. They are often intended to cover living expenses while the recipients are engaged in educational or organizational work or training.

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