Stipend

Updated on January 5, 2024
Article byNanditha Saravanakumar
Edited byAlfina
Reviewed byDheeraj Vaidya, CFA, FRM

Stipend Definition 

A stipend is a type of monetary compensation offered to interns, apprentices, trainees, research fellows, etc. Usually, it is much lower than the salary paid to full-time employees. Sometimes, it is even lesser than the minimum wage. However, the amount is pre-determined and depends on the employer’s discretion.

Stipend Meaning

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Source: Stipend (wallstreetmojo.com)

The main purpose of providing such compensation is to help the receiver cover at least some expenses and support them financially. Though a source of income, the employer doesn’t deduct the taxes, perhaps due to the size of the remuneration. But the receiver is obliged to pay personal taxes.

Key Takeaways

  • The stipend refers to an employer’s remuneration for an internship, apprenticeship, training, or academic research. It is mostly paid on a weekly or monthly basis.
  • It is important to remember that the primary beneficiary of such an arrangement is the receiver themselves and not the organization. 
  • The training or lessons the trainee or intern receives should help them in their career or studies, and the employer should not benefit by making the trainee do an employee’s work for lesser compensation.

Stipend Explained 

Stipends can be financial assistance or an allowance to a person interested in working and learning simultaneously from a particular employer. For example, interns in a bank, trainees in a logistics firm, apprentices to an artist, research assistants in a lab, etc., receive such compensation.

The main aim of stipend pay is to facilitate people, especially students, to learn and gain practical exposure from an organization, which will help them as part of their academics or advance in their careers. Thus, only they are supposed to benefit from such an arrangement. But additionally, they also get financial support.

However, in reality, the employers do get some work done by the interns while also providing them the opportunities to learn. Further, such initiatives enhance the reputation of the firms. For instance, renowned organizations like Google and Goldman Sachs publicize their student programs. Moreover, it helps these organizations find talented candidates the company might later recruit as full-time employees.

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Features

Let’s look at some features of stipends in brief:

  • Firstly, the amount paid to interns and trainees is lesser than salaries. Sometimes it doesn’t even qualify as minimum wage.
  • Secondly, the employers will not withhold the income tax on such compensations, but it is the liability of the individual receiving the amount.
  • Thirdly, remuneration to interns and trainees is not wages. Instead, it’s a pre-determined allowance.
  • Lastly, increments or additional perks cannot be expected, like salaried employees.

Examples

Consider the examples given below to understand the meaning of a stipend.

Example #1

John is an aspiring journalist in his senior year of college. As a part of his academics, he interns at a newspaper daily, ‘The Global Reporter.’ The internship requires him to relocate for three months. The employer agrees to a weekly stipend payment of $100. The employer also agrees to undertake John’s boarding expenses. 

Example #2

Here’s a real-life example of the stipend payment for internships on Wall Street. In April 2022, Bloomberg published an article estimating a top intern’s remuneration at around $16,000 a month. It also said that top investment banking companies raised their compensation by 37.2% in 2022.  

The job market for various other industries has been dull this year. However, in the finance industry, the turnover has been very high. The high compensation can be attributed to the talent pool offering the brightest candidates.

Stipend vs Salary

Even though Salary and stipend are both remuneration types, they differ in meaning and scope. So let’s distinguish between the two:

StipendSalary
Compensation paid to interns, trainees, apprentices, etc.Compensation paid to full-time permanent employees.
The amount is usually less than the salary and sometimes even lesser than the minimum wage.The salary amount should adhere to the minimum wage mandated by the law.
The employer does not deduct taxes from the compensation amount. But the receiver has to pay tax.The employer deducts taxes before crediting the salary amount.
The primary beneficiary is the receiver.Both the employer and employee are beneficiaries.
It only covers basic expenses. Most employers do not provide additional benefits.Additional benefits accompany salaries, like educational assistance, paid vacations, etc.

Frequently Asked Questions (FAQs)

1. Are stipends taxable?

Yes. Stipend pay is taxable. However, the employer doesn’t deduct the tax before paying the intern or trainee due to the lesser amount. Instead, the receiver is legally obliged to pay personal taxes.

2. Can volunteers be paid a stipend?

Yes. Non-profits paying compensation to volunteers is perfectly legal. However, to be safer, both the organization and the volunteer should be aware of the relevant laws.

3. Is stipend monthly?

Like salary, most employers pay a monthly stipend. But some employers pay weekly. Moreover, the payment is made in such a way as to help the receiver manage their finances and basic expenses on a regular and as-needed basis.

4. Is stipend considered income?

Yes. Stipends are monetary compensation or remuneration. But though it is taxable, it is the personal obligation of the receiver, and the employer will not deduct from the payment to the receiver. This is probably because the pay is too less to be considered at par with salaries.

This article is a guide to Stipend and its definition. Here, we explain it with examples and present its comparison with the salary. You can also go through our recommended articles on corporate finance –

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