Wellness Rewards: Prioritizing Employee Well-being

Workplace wellness has rapidly evolved, becoming a core focus of modern organizations. Instead of simply checking boxes with token gestures, today’s companies are reimagining what it means to support employees—placing real emphasis on helping people thrive both at work and beyond.

As Alex Gourlay, former Co-chief operating officer of Walgreens Boots Alliance notes, "We are embedding health and well-being at the heart of our business strategy because our people are our greatest asset."

Building on this vision, wellness rewards have become a natural progression—purposeful programs leveraged by behavioral science, designed to encourage healthy choices through meaningful incentives.

They're sophisticated behavior-shaping tools that tap into both extrinsic motivation (through rewards like cash, gift cards, or premium discounts) and intrinsic satisfaction (the internal drive to improve one's health).

What makes these programs truly effective is how they're tailored to your specific workforce, aligned with business objectives, and designed with human psychology in mind. When done right, they create that rare win-win: healthier, happier employees and stronger organizational performance.

Let's now discover how to build a wellness rewards program that does exactly what I stated above.

What are Wellness Rewards?

Wellness Rewards are incentives or benefits that organizations provide through wellness rewards programs to employees who actively engage in activities that promote their overall well-being and health. As defined by wellness experts, these are "incentives or benefits offered to individuals as a recognition of their efforts to improve or maintain their health and well-being".

They aim to encourage employees to adopt healthy behaviors, establish lasting habits, and reinforce positive lifestyle choices.

These programs frequently include goal-setting and progress tracking, which enhance self-efficacy. As individuals achieve their goals and receive rewards, they build confidence in their ability to sustain healthy habits.

To achieve these goals, wellness rewards programs can be established and implemented in various ways, typically involving several key components:

• Participants usually need to enrol in the program. They then track their wellness activities, often using software, mobile apps, or by submitting documentation, in order to earn incentives/rewards.
• Employees earn incentives for completing activities, reaching milestones, or participating in challenges.
• Once enough rewards are earned, they can typically redeem incentives for various perks or benefits.

To be precise, an employer can offer a $50 gift card to any employee who walks for at least 15 minutes daily for one month straight. On accomplishing the task, the employee can earn a gift card and redeem those points to buy things of their choice. This incentive motivates the employee to establish a regular walking routine.

That way, the company not only gains a healthier and happier workforce, but the employees experience benefits as well. It’s a win-win situation for both.

How employees earn rewards, and the structure of the program can vary:

• Participatory wellness programs offer incentives for participation regardless of current health status or risk, such as completing a health risk assessment (HRA) or attending a class.
• Health-contingent wellness programs provide incentives for achieving specific health outcomes or engaging in activities towards an outcome. These can be activity-only (rewarding participation in activities aimed at an outcome) or outcome-based (rewarding the achievement of a specific health goal).
• Points-based systems allow employees to complete activities and earn points, which can be exchanged for rewards. These systems can sustain engagement longer than cash-only models.
• Performance-based systems recognize and reward top performers in a wellness activity or challenge.
• Event-based systems offer incentives for attending specific wellness-related activities or events, such as webinars or health fairs.

Besides that, wellness rewards programs operate at the confluence of behavioral economics and organizational psychology, leveraging both intrinsic and extrinsic rewards.

According to Self-Determination Theory (SDT), individuals are motivated by both intrinsic and extrinsic factors.

Intrinsic rewards refer to the internal drive to engage in an activity for its inherent satisfaction or personal health goals. These rewards align with one’s values, interests, and desires for personal growth and purpose.

For instance, I strength train 4 days a week because I am determined to take care of my muscle mass. I don’t need any prizes for that. My muscle mass gain is itself the reward here.

The determinants of such a reward are:

• Internal Satisfaction
• Autonomy
• Personal Growth
• Purpose
• Interest or Enjoyment
• Pride

"Any company that can provide a sense of meaning, purpose and happiness will be able to attract great talent."
– Fred Kofman, Executive Coach, Economist, Author

Extrinsic rewards, on the other hand, provide external reinforcement, acting as incentives to encourage specific behaviors. They typically have monetary value, such as cash bonuses, prize money, and additional benefits.

In simple terms, an employee gets externally rewarded for accomplishing a task.

The determinants of extrinsic rewards are:

• External Validation
• Tangible/Material Benefits
• Discounts/Reimbursements on Services

Examples of Wellness Rewards

The types of rewards offered through these programs are diverse:

• Monetary Incentives: This includes cash bonuses, gift cards (which some research suggests can be more effective for employee performance than cash or tangible rewards despite cash being preferred), or "health cash".

• Benefit-Based Incentives: These often provide long-term value and can include discounts on health insurance premiums, lower co-pays or deductibles, contributions to health savings accounts (HSA) or health reimbursement arrangements (HRA), or flex benefit credits.

• Non-Monetary Perks / Physical Items: Examples are paid time off or extra vacation days, fitness trackers or other wellness gadgets, quality gym bags or company swag, memberships or discounts to health-oriented places or gym memberships, tablets or TVs with Wii Fit, water bottles or clothing, personalized gift boxes or wellness kits.

• Experiential Rewards: This can involve company-sponsored lunches or group activities during work hours, free health classes or workshops, support for programs like Weight Watchers, discounts on healthy food options, event reimbursement for races, or raffle entries for larger items like trips.

• Recognition: Celebrating achievements with public kudos or recognition events.

• Miscellaneous: This can include bonuses and merit pay increases tied to participation, or charitable contributions made by the company on behalf of the employee.

Why Wellness Rewards?

Wellness reward programs are reshaping workplace dynamics by blending behavioral psychology, neurobiology, and economic theory with employee health. These programs offer extrinsic incentives—like financial rewards, insurance discounts, or gift cards—to motivate employees to engage in health-promoting activities.

The ultimate goal is to cultivate intrinsic motivation, where healthy habits continue even after the rewards are withdrawn.

The Transtheoretical Model outlines the journey individuals take in adopting healthy habits. It suggests that individuals move through five stages: pre-contemplation, contemplation, preparation, action, and maintenance. Tailoring rewards to these stages makes all the difference:

• Pre-contemplation/Contemplation: At this stage, external rewards like a cash incentive can help bypass present bias—our tendency to favor short-term gratification over long-term health benefits.
  For example, a smoker might attend a cessation program if offered $100, even if they’re not fully committed to quitting.

• Action/Maintenance: As behaviors shift into habits, the focus naturally moves from external rewards to intrinsic rewards, like the joy of exercise or the peace of mind that comes with better health.

A comprehensive review of 34 studies found that financial incentives can help sustain behavior change for up to 18 months even after the rewards stop. This reflects how dopamine-driven pathways in the brain help integrate these behaviors into our daily routines over time.

Moreover, when incentives align with personal goals—like a gym membership to help a parent stay healthy enough to "play with grandchildren"—they foster autonomous motivation.

A conceptual review found that tailored/personalised incentives increased the likelihood of long-term smoking cessation by 53% compared to generic rewards. This approach leverages behavioral economic principles by framing incentives as investments in life goals rather than transactional exchanges.

Additionally, incentives also tap into the brain’s reward system. Wellness rewards exploit this pathway by associating healthy behaviors with positive stimuli. A $50 bonus for hitting step goals can trigger dopamine release, rewiring the brain to associate exercise with pleasure.

Source

Companies like Johnson & Johnson have experienced a 2.71:1 return on investment (ROI) over ten years, proving that rewards wellness programs benefit both employees and the bottom line.

How Does a Wellness Rewards Program Function?

We are embedding health and well-being at the heart of our business strategy because our people are our greatest asset, and we recognize that a healthy, happy, and committed workforce is vital to our business success.
– Alex Gourlay, the former Co- chief operating officer of Walgreens Boots Alliance, Inc

Wellness rewards programs operate as behavior modification systems that leverage gamification, data analytics, and neuroeconomic principles to incentivize health-positive actions.

These programs function through a closed-loop architecture: trackable activities → point accumulation → reward redemption → behavioral reinforcement.

For example, a 2024 Wellhub program awarded 50 points for logging 10,000 steps, 100 points for tracking meals, and 25 points per meditation session, with tiered rewards like gift cards or premium insurance discounts.

Below, we dissect the key elements that enable these programs to drive measurable health outcomes:

1. Core Functional Components

Activity Tracking and Data Integration

Today’s wellness programs use smart platforms that sync data from various sources—wearables like Fitbit or Apple Watch, health apps like MyFitnessPal, and even company systems like HR management tools.

This technology allows for seamless tracking of:

• Physical activity: Steps, exercise minutes, heart rate
• Biometric data: Sleep patterns, glucose levels, heart rate variability
• Mental health: Mood logs, meditation durations, stress levels

The data is transformed into a unified system of “wellness points”, allowing employees to compare their progress to others while being rewarded for their efforts. For instance, 30 minutes of yoga may equal 50 points, while completing a biometric screening could earn 200 points.

2. Incentive Structures and Behavioral Economics

Tiered Reinforcement

Programs often use a variable ratio reinforcement strategy, which is a psychological tactic where rewards are delivered unpredictably to boost engagement. A hybrid approach, as seen in 2024, combined:

• Fixed rewards: 100 points for attending a nutrition workshop.
• Lottery rewards: A chance to win $500 for achieving monthly step goals.
• Social rewards: Public recognition on company platforms for top performers.

A Fortune 500 tech firm launched a wellness program with the following tiered structure:

• Bronze (500 points): $25 Amazon gift card + 1 hour of paid time off
• Silver (1,500 points): $150 wellness stipend + gym membership subsidy
• Gold (3,000 points): $500 HSA contribution + executive health screening

After 18 months, the program achieved:

• 73% participation rate (vs. the 40% industry average)
• $1.2 million saved in avoided diabetes management costs
• 12:1 ROI from reduced presenteeism (employees being at work but not fully productive)

This strategy taps into the brain’s reward prediction error system, where unpredictable rewards keep employees motivated 3 times longer than fixed, predictable rewards.

Monetary vs. Non-Monetary Incentives

• Monetary rewards: Direct payments (like $300 for maintaining a healthy BMI) or discounts (e.g., 5-15% off insurance premiums) offer clear, tangible incentives. A 2024 SHRM study found that $500+ annual incentives increased participation by 62% versus 34% for non-cash rewards.

• Non-monetary rewards: These include things like points that can be redeemed for items (e.g., a Fitbit), extra paid time off, or even donations made in the employee’s name. Notably, 58% of employees reported that social recognition was more valuable to them than cash rewards.

Implementation Architecture

Phase 1: Needs Assessment and Goal Alignment

Before rolling out a wellness rewards program, employers conduct health risk audits to understand the biggest wellness challenges in their workforce—whether it's diabetes, burnout, or stress.

For instance, a Talkspace program in 2025 saw a 40% reduction in burnout after surveys revealed that mental health support was the top priority for 68% of staff.

Phase 2: Technology Deployment

After assessing needs, employers integrate technologies that sync data from health apps, wearables, and internal systems. Middleware, like Redox Engine, ensures seamless data flow across platforms, while analytics dashboards give real-time insights into overall wellness progress.

Phase 3: Reward Fulfillment

Once milestones are achieved, rewards are distributed automatically via APIs that connect the wellness system to reward vendors like Tango Card. Instant rewards, like gift cards, are delivered as soon as an employee hits their target.

Challenges and Solutions

Privacy Concerns: Around 28% of employees opt-out due to concerns over wearable data sharing. To address this, many programs adopt anonymous aggregation and strict data governance policies to ensure privacy.

Socioeconomic Gaps: Hourly workers may lack the time to participate in wellness challenges. A solution is to offer micro-activities, such as 5-minute meditations that earn employees 10 points each.

Long-Term Engagement: As time goes on, participation often drops. For instance, post-24-month participation tends to fall to 31%. To combat this team-based challenges can be conducted where departments or teams compete for charity donations, fostering a sense of community and shared responsibility.

How to Choose the Right Wellness Rewards Program for your Company?

Selecting an effective wellness rewards program requires balancing employee needs, company goals, and measurable outcomes. Let’s break down the process with depth and clarity, ensuring you make a choice that feels human, intentional, and impactful.

1. Start with Your People

Why it matters: Wellness programs fail when they’re built on assumptions. For example, rolling out a weight-loss challenge when employees are battling burnout misses the mark.

How to do it right:

• Conduct anonymous surveys: Ask specific questions like, “What’s one health habit you’d like to improve?” instead of generic ones.
• Host focus groups: Dive deeper with questions like, “Would you prioritize mental health workshops over gym memberships?”
• Use data smartly: Platforms like Vantage Fit analyze activity patterns (e.g., “Most logins happen at 7 AM-ideal for morning meditation challenges”).

2. Align with Business Goals

Why it matters: Wellness programs should solve business problems, not just tick HR boxes.

Examples:

• Reduce healthcare costs: Reward employees for completing preventive screenings (e.g., $150 for annual physicals).
• Boost creativity: Offer “innovation hours” for completing mindfulness challenges.
• Improve retention: Link wellness milestones to skill-building budgets (e.g., “Complete 10 workouts → $500 toward a course”).

3. Offer Rewards That Resonate

Why it matters: Money motivates, but purpose sustains.

What works:

• Experiential rewards: Cooking classes, adventure trips, or spa days.
• Social recognition: Feature top performers in company-wide emails or donate to their chosen charity.
• Personal growth: Subscriptions to MasterClass or Calm for hitting mental health goals.

4. Ensure Accessibility

Why it matters: A program that excludes deskless workers, non-tech users, or disabled employees does more harm than good.

Solutions:

• Offline tracking: Let warehouse staff log activities via SMS or paper forms.
• Cultural sensitivity: Offer halal meal-planning guides or Diwali-friendly fitness challenges.
• Device flexibility: Sync with $20 Mi Bands or allow manual entry for those without wearables.

5. Budget Wisely

Why it matters: Overspending on flashy tech or underfunding rewards leads to disengagement.

Smart strategies:

• The 70/30 rule: Allocate 70% of the budget to high-impact activities (e.g., mental health counseling) and 30% to engagement boosters (e.g., quarterly raffles).
• Phased rollout: Test a 3-month pilot with a $50/employee budget before scaling.

6. Design for Human Nature

Why it matters: People stick to habits when they’re easy, rewarding, and socially reinforced.

Psychology-driven tactics:

• Variable rewards: Surprise employees with random bonuses (e.g., “You walked 10K steps today-here’s a $10 bonus!”).
• Micro-challenges: “5-minute desk stretches” feel less daunting than hour-long workouts.
• Team dynamics: Departmental step contests with a pizza party prize tap into camaraderie.

Final Checklist

• Does it address your workforce’s top health risks? [ ]
• Can rewards be tied to specific business outcomes? [ ]
• Is the technology user-friendly and inclusive? [ ]
• Are incentives meaningful yet budget-friendly? [ ]

Are Wellness Rewards Taxable?

One question that often arises with wellness program rewards is whether the rewards and incentives offered to employees are taxable. The answer, like many tax issues, is that it depends.

Generally, any reward or incentive not considered medical care is taxable income for employees. So, gift cards, gym memberships, and other non-medical incentives must be included in taxable income and are subject to payroll taxes.

However, the tax code does allow certain types of “fringe benefits” to be exempted from income.

Fringe benefits are a form of extra compensation employers provide separate from taxable income. Offering wellness rewards as fringe benefits allows companies to motivate at no additional cost to employees.

Fringe benefits that make ideal incentives include:

1. De Minis Fringe Benefits

A de minis fringe benefit is something with such a low value that it would be unreasonable for the employer to account for. Small branded gifts like t-shirts, water bottles, or healthy snacks fall under this category.

2. Use of On-Site Athletic Facilities

If an employer offers free use of an office gym or athletic facility, and employees and family mostly use it, this can be a tax-free perk.

3. Insurance Premium Reductions

Lower health insurance costs or reduced deductibles provided through a wellness program are not taxed.

4. HSA/FSA Contributions

Employer contributions to a Health Savings Account (HSA) or Flexible Spending Account (FSA) are also tax-free. An HSA and FSA are tax-advantaged accounts that let employees set aside pre-tax dollars to pay for qualified medical expenditures.

The bottom line is that while wellness programs don’t automatically make rewards tax-free, some common incentives can qualify as fringe benefits. But others, like cash and gift cards, will always be taxable income. Considering the tax implications is a pivotal aspect of designing wellness rewards.

Key Factors that affect Taxability of Wellness Rewards

Beneath the appeal of such enticing incentives lies a crucial consideration: the tax treatment that they entail. Understanding the factors determining the taxability of wellness rewards isn’t just for the experts! It’s a must-know for anyone entering the realm of employee benefits.

Here are a few factors to keep in mind:

1. All Staff vs. Exclusive Perks

Wellness rewards made available to all employees equally may qualify for tax-free status. But those exclusively limited only to a select few (such as executives or star performers) may be taxable.

2. Reward Types

The taxability differs based on the types of wellness rewards offered. For instance, if employees pay for a reward on a pre-tax basis, the IRS may consider it tax-free. However, other monetary rewards, such as cash and gift cards, are generally taxable.

3. Employee Location

Employees may be dispersed across many tax jurisdictions in today's remote-work era. This means wellness reward taxes will vary based on the employee’s location.

For professional help, consult tax experts to better understand local laws governing wellness rewards. They can help determine proper tax statements.

Common Tax Blunders

Employers often commit tax-related mistakes when dealing with wellness program rewards. Some of them might be:

1. Mistakenly presuming that if the wellness program is tax-free for the employees, the incentives are also tax-free.

2. Mistakenly presuming that since wellness program incentives are typically of small value, they are automatically exempt from taxation.

3. Failing to check state taxes. While wellness rewards are federally taxable, some states provide exemptions. Checking one’s state tax laws regarding wellness rewards is crucial.

4. Neglecting to communicate the tax rules of incentives to employees effectively. It might lead to disappointment among employees.

Wellness Rewards: Points vs. Cash

Choosing the right reward structure is essential for successful incentive programs. Companies often debate between points systems versus cash rewards.

Let’s review the lists of benefits of both contenders and come to a thought-out conclusion.

Benefits of using Points

1. Flexible Redemption

Points can be redeemed for a variety of wellness rewards. These can include gift cards, merchandise, travel vouchers, and more. Employees have a lot of options. There’s also no set time frame. They can be redeemed whenever they want.

2. Taxability Advantages

Points don’t come under taxable income. This benefit raises the value of points in manifold ways. Employees have a lot of options. There’s also no set time frame. They can be redeemed whenever they want.

3. Higher Perceived Value

Research claims that many employees find points more motivating than cash rewards. For them, a cash reward is just more salary, whereas points/non-cash rewards are viewed as distinct from salary.

4. Efficient Motivator

Earning extra cash is always great. But imagine an art enthusiast getting art museum tickets and a golden opportunity to immerse oneself in Van Gogh’s beautiful paintings. Doesn’t that sound wonderful?

Cash can get lost in mundane transactions. But such meaningful experiences as these leave indelible impressions on employees' minds.

5. Paid Time Off

Rather than providing cash rewards, a point-based system can also aid employees in saving up for their desired paid time off.

For instance, earning 500 points can be equivalent to a paid leave day. The employee could redeem this at their convenience.

6. Gives an Added Push

Spending money on a desired item is a completely voluntary action. And sometimes, it can induce guilt because of our mindless spending habits!

But points foray you into a land of enticing perks. And those are not voluntarily decided by you. Rather, those are given to you as options because you performed well in your wellness tasks. There’s a sense of pride and accomplishment attached to it.

Benefits of Using Cash

1. Fungibility

Cash is universally valuable across all goods and services. Points only apply to exclusive redemption options.

2. Cost-effectivity

Points systems require investment in technology to track point accruals and balances. In contrast, cash rewards can rely on just payroll processes. They also require less administrative overhead.

3. Simplicity and Clarity

Cash rewards are simple to understand and communicate. There’s no involvement in a complex point accrual system.

Moreover, currency values in every country are known by all its citizens. As for the U.S., 1 dollar equals 1 dollar, and for India, 1 rupee equals 1 rupee. People are aware of the cash’s worth.

When it comes to points, that appeal is lost. We don’t know how much a point is worth and dread that “conditions apply” sign. We instantly assume that points are not as beneficial as they seem. Such chronic skepticism pesters us to choose cash over points.

4. Cash is King

And yet again, I will say that money is money. An employee won’t really look for gift cards if he has bills to pay. Remember Maslow's Theory? Yeah, it applies here. If employees have unmet basic needs, they will hardly think of their self-actualization needs.

This is where Cash is the hero. Cash lets you pay for all the mandatory bills you ought to pay. And it's not limited to just a few outlets.

What do we recommend?

Given the benefits of both cash and points systems, the best approach may be a hybrid model. Points can help drive participation through fun redemptions and challenges, while cash provides a clear, valuable incentive.

This allows companies to motivate participation through direct cash rewards while also leveraging the flexibility and perceived value of points for additional engagement. Ultimately, the combination maximizes engagement and ROI while accommodating budget limitations.

Moreover, points anyway foray employees into a land of monetary opportunities. Even if they are not termed as cash rewards, they still let employees buy stuff with huge discounts. Recently, I purchased a book without spending a single penny. And it was all possible because of the blessing of points.

Both of the options are viable. If a company is small and wants to include a wellness plan, they can always go for points. But as they grow, they can use both points and cash rewards.

Cash is king, but points can administer corporate kingdoms too. Both go hand in hand.

Bottom Line

As the link between employee health, well-being, and business performance gains global recognition, wellness rewards are emerging as a best practice embraced by leading organizations worldwide.

Employees look for companies that treat them as valuable assets and not just soulless work robots.
Offering wellness benefits like gym memberships, meditation classes, or nutrition workshops shows genuine care for employees' health and well-being.

The key is showing employees their health and happiness matters through comprehensive and innovative programming. This level of investment in their well-being makes employees feel valued as human beings.

Thus, concluding the article with a profound quote, that says:

“If you just pay (workers), you’re going to get the minimum discretionary effort; they’ll just work for the pay, but if you want them to pour their hearts and souls, you need to give them more.”
– Fred Kofman, Executive Coach, Economist, Author