Adding Tuition Reimbursement To Your Benefits Package

With the school year now in full swing, millions of students are back in the classroom. And while most people might associate “back-to-school” season with elementary or secondary schools, young children aren’t the only ones getting ready to hit the books.

According to a 2012 report published by the U.S. Census Bureau, about 20 percent of undergraduate students and 50 percent of graduate students work full time (35 or more hours per week), for a total of roughly six million full-time employees enrolled in either undergraduate or graduate program. And with the cost of tuition and related expenses constantly on the rise, that number is likely to have increased and continue to rise in the future.

With those figures, is it any wonder that the popularity of tuition reimbursement benefits is steadily climbing?

What are tuition reimbursement benefits?

As far as employee benefits go, tuition reimbursement is one of the more easily understood benefits an employer might offer. Simply put, employers agree to reimburse employees for certain tuition-related expenses. Of course, there are a whole host of terms an employer might attach to this benefit, including eligibility requirements, subject-matter stipulations, etc.

Why offer tuition reimbursement?

Tuition reimbursement benefits are often seen as a desirable perk by employees, and can therefore serve as a valuable employee retention and recruitment tool. Offering this kind of benefit demonstrate an employer’s commitment to the personal and professional development of its employees, and could easily be a swaying factor for candidates evaluating similar job offers.

While paying for employees’ tuition is a benefit many small companies feel unable to extend, the federal government does help by allowing employers to provide their workers with up to $5,250 a year in tax-free educational benefits, including assistance for graduate studies, as par of a qualifying educational assistance program.

In order to be considered a qualifying educational assistance program by the IRS, the program must pass the following tests:

• The program benefits employees who qualify under rules set up by you that don’t favor highly compensated employees. To determine whether your program meets this test, don’t consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining.
• The program doesn’t provide more than 5% of its benefits during the year for shareholders or owners. A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business.
• The program doesn’t allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance.
• You give reasonable notice of the program to eligible employees.

[Source: IRS.gov]

A few things to consider

• Is it really something your employees want?
  As with any employee initiative or new program, employers should make sure that tuition reimbursement is really something that’s important to both their current employees and potential new recruits in their industry. If it is, great! If not, employers might want to consider investing their money in a program their employees will both utilize and appreciate (like a corporate wellness program).
• How much are you willing to reimburse?
  Corporate America spends an estimated $10 billion on tuition reimbursement programs annually. Before an employer decides to add to that number, they should figure out what, and how much, they are willing to cover when it comes to educational expenses, and structuring the program accordingly. Will you only cover classes or programs that directly relate to your industry or an employee’s role within your organization, or will any classes be eligible? Will you cover solely tuition, or also reimburse books and other related expenses? Will you set a cap on the amount an employee can be reimbursed per year, or per the tenure of his or her employment? Will the benefit amount be calculated as a flat amount, or as a percentage of the expenses an employee incurs?
• Who will be eligible for tuition reimbursement?
  A common practice is to limit eligibility to full-time employees, or to those employed by the company for a minimum amount of time. Whatever you decide your eligibility requirements should be, you should make sure to apply them consistently and fairly across the organization.