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Tuition Reimbursement: Considerations for Employers

Offering tuition reimbursement to your employees shows that you value their dedication to your company and their willingness to improve their skill sets. There are certain elements to tuition reimbursement to consider before granting this employee perk. Learn more about what tuition reimbursement is, the pros and cons of offering it and things to consider, such as who should be eligible when setting up this program for your employees.

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What is tuition reimbursement?

Tuition reimbursement offers employees money for taking college courses while employed with your company. The employee will typically pay for their courses, and the employer reimburses these costs upon course completion. How much the employer decides to pay is up to the company’s policy. Some employers may pay for tuition plus additional expenses, like books, pens, pencils and paper or a school laptop.

Some employers choose to provide tuition reimbursement under certain conditions. Common conditions employees may have to meet include:

  • Pursuing a specific program of study:Some employers will only reimburse tuition if the employee studies or majors in subjects related to their field. For instance, if a marketing coordinator went back to school, their employer would fund marketing courses but not culinary school.
  • Pricing for the courses:To maintain a steady budget, employers may only pay for courses that add up to a reasonable price. If the course prices go over the limit set in the company policy, the employee is responsible for paying the remainder.
  • Earning specific grades:An employer may only pay for tuition if the employee earns a minimum grade in the class. Some require students to earn a C or higher before paying for certain courses. Grade point rules vary among employers and should be listed in the employee handbook.

Pros and cons of offering tuition reimbursements to employees

Common advantages and disadvantages of offering tuition reimbursements to your employees include:

Pros of tuition reimbursement

The tuition reimbursement employers offer to their staff can benefit both parties. Here are the pros to providing tuition reimbursement to your employees:

  • Attract more candidates: Many candidates will choose a company over its competitors if it offers valuable perks, like tuition reimbursement, which help them grow and advance in their careers.
  • Enhance employees’ skill sets: Funding an employee’s tuition boosts their education level, making them a more qualified candidate to eventually work in senior-level positions at your company. They also develop a stronger skill set that they’ll apply to their role and even teach to other employees, essentially improving performance rates throughout your organization.
  • Earn a tax break:Covering your employee’s tuition provides a tax break of up to $5,250 annually per employee for your company. The employee also gets a federal tax break up to the same amount.
  • Increase employee engagement: Offering perks like tuition reimbursement can help improve employee engagement. It shows your employees that you value them and support their development.
  • Retain employees:Your employees may work for your company longer with tuition reimbursement. They can likely only take a few classes per semester, so they might continue to work for you to complete the program or stay in case they want to take more classes in the future. If you include a retention clause that specifies they need to stay a certain length of time after completing classes, this can help you retain employees.

Cons of employer tuition reimbursement

Here are the cons of providing company tuition reimbursement to your employees:

  • Burnout in some employees: Balancing work and courses can be challenging for some employees to manage successfully. Make sure you’re checking in on your employees to ensure their college courses aren’t affecting their productivity or focus. Ask if you can provide any assistance or guidance during this time.
  • Costly perk: Depending on how much of your employees’ tuition you decide to fund, you could be investing a significant amount of your budget that could cause financial difficulties. Run your reimbursement policy by your accounting and financial teams beforehand to ensure you can afford it.
  • Lots of paperwork: As your employee proves they followed all of your policy regulations to receive reimbursement for their courses, they’ll typically have to submit documents, receipts and forms notifying you of this. It can be challenging and time-consuming to keep track of all this information.
  • Potential for lower morale: While many people see tuition reimbursement as a perk, some employees might stay with your company only to get the free tuition. If they’re unhappy, they’ll likely lower morale and hurt productivity.
  • Dissatisfied employees: Another potential morale issue is an employee who’s disappointed about not earning a raise or promotion after earning a degree. If the new degree qualifies them for a more challenging and higher-paid position, they might feel dissatisfied staying in their current position.

Things to consider when setting up a tuition reimbursement program

Deciding on key elements of tuition reimbursement programs for your employees helps you shape your program. Things to consider include:

Budget limitations

Before implementing a tuition reimbursement plan, first, decide if it fits within your budget and how much you can afford to reimburse. Meet with your financial and accounting teams to set a reasonable budget for the program that benefits the employee and keeps you financially stable. Work with the finance teams to develop a set amount that you can afford for each employee. Keep in mind that not all employees will take advantage of the program, but you need to have room in the budget if more people than you expect to decide to go back to school.

Tax breaks

Research the details regarding the tax breaks you’ll receive for paying your employees’ tuition. Your tax break will cover up to $5,250 each year, but this amount can change at any time. Any amount greater than that no longer earns you a tax break. Work with your accounting teams again to determine how much you can afford beyond that amount.

You can decide to offer funding beyond this amount to your employees to show your encouragement and appreciation for them returning to school and improving their careers. However, you and your employees lose the tax break on any amount above the limit.

Eligible expenses

Decide which expenses you’ll cover, which might include tuition, fees, textbooks and other necessary educational supplies. If you’d like to contribute more to your employees’ education, consider reimbursing additional materials they’ll need for courses. including expenses like pencils, calculators, pens, internet connection and computer equipment.

Course limit maximum

Decide if you want to limit the number of courses you’ll cover for employees each semester. Restricting the number of courses helps you stick to your budget. The limit can also help prevent employees from becoming overwhelmed with too much work.

Though educational courses are a great way for employees to build their skill set and enhance their knowledge, taking too many courses can negatively impact their motivation and interfere with their work performance. Funding a smaller number of courses each semester helps employees avoid the feeling of being stressed and burnt out.

Course restrictions

Consider what type of courses you’ll cover. You might decide to cover courses related to their career field since the driving reason for offering funding is to encourage them to learn more about their field. This makes the coursework mutually beneficial because employees can apply what they learn to their work.

Virtual vs. in-person classes

Some employers worry that in-person classes will be too time-consuming or interfere with meetings and work commitments. This is why many employers will reimburse employees’ courses only if the employee takes a certain number of online classes. This allows them to balance classes and work without missing important client meetings, industry conferences or company events.

Creating a tuition reimbursement policy

Reimbursing your employees’ tuition is a great way to reward their drive to go back to school and enhance their skill set. As you implement this program, make sure you create a policy within your employee handbook. This policy should clearly state the cost you’ll cover for courses, how many you’ll consider reimbursing, which courses they’re allowed to take and any other information that affects their tuition reimbursement. Communicate this in a meeting and answer any questions employees have about the program.

FAQs about tuition reimbursement programs

Are there any circumstances in which employees have to pay back the tuition reimbursement?

You can require an employee to pay back the tuition reimbursement if they leave your company voluntarily within a set amount of time. However, you must specify this in your policy covering employee tuition reimbursement. List the length of time the employee has to stay with your company after completing the coursework and receiving the reimbursement. List specific reasons for leaving and whether or not they have to pay back the reimbursement. For example, you might require them to pay it back if they quit voluntarily or get fired for just cause. However, you might not require repayment if they get laid off.

Who decides if a class is eligible for reimbursement?

Your HR team typically handles perks like tuition reimbursement. The person who handles your benefits administration is the most likely candidate. Ensure they fully understand the eligibility requirements for reimbursement. When creating your employer tuition reimbursement policy, establish a procedure for getting classes approved for reimbursement. This includes required documentation, how to submit the information and who will approve it.

Do you have to offer tuition reimbursement to all employees?

You can set some eligibility requirements for employees to participate. For example, you might only offer the program to full-time employees, or you might offer a prorated amount to part-time employees. Some companies require employees to work for them for a certain length of time, such as six months or one year before participating in the tuition reimbursement program. Ensure you don’t discriminate against any employees when setting your eligibility requirements.

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