How to Build a Tuition Assistance Program

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How to Build a Tuition Assistance Program

As college tuition rates continue to rise, offering employees an opportunity to go back to school and earn a bachelor or a master’s degree has increased in value. Many employers have taken advantage of the opportunity to boost their benefits package and offer tuition reimbursement to their employees.

According to the ERC 2013/2014 Policies & Benefits Survey, more than half of the participating employers offer a tuition reimbursement program to employees. If you are among the employers considering the option of offering this benefit, here are some questions and recommendations to consider when launching a tuition reimbursement program for your employees:

Who will administer the program?

Generally, the HR department will manage this benefit. Along with supervisor approval, HR can create the policy to streamline the process, distribute necessary forms and be the point of contact for employees to submit the necessary paperwork for reimbursement.

Best practice: When implementing a program, be sure to put it in writing and spell out as many details as possible so employees know what they are getting into. Here is a quick checklist of the items to include:

  • Eligibility
  • Request for authorization
  • Requirements—what course will and will not be reimbursed
  • Level of reimbursement—undergrad vs. graduate courses
  • Taxation
  • Reimbursement agreements (if applicable)

Which employees will be eligible to participate?

According to the ERC 2013/2014 Policies and Benefits Survey, defining the eligibility requirements are generally based on number of hours worked. The survey also shows employees who have been at the organization for a minimum of nine months are eligible for the benefit. However, the employer can determine what is most appropriate for their industry.

Best practice: Define eligibility by employment status (i.e. how many hours constitute full-time) and length of service. Also address how a change in status while enrolled in the program will be addressed, such as if termination.

How much will you reimburse?

The current IRS limit for reimbursement for a qualified plan is $5,250 per year for tax-free education assistance to the employee. Reimbursements made above this amount generally need to be included in the employee’s wages- see IRS requirements or consult a tax advisor.

Reimbursement can cover tuition fees and costs of books, but travel, transportation, and meals or lodging are not included. Employers are free to set the limit at whatever they choose and many do pay more for both undergraduate and graduate degrees.

Another option to consider is a percentage of the cost vs. the actual dollar amount. According to the ERC survey noted above, of those employers that reimburse as a percentage, the reimbursement is at or above 75% of costs. This will depend on how much money is allocated to the benefit annually.

Best practice: Define the criteria for reimbursement. Original documents for passing grade and/or receipt of payment are recommended.  Include wording that tuition assistance from other sources (such as a scholarship or GI bill) will not be reimbursed.

What schools will you reimburse from?

Generally, companies reimburse tuition from state or federally accredited institutions. Make sure to include in your policy whether you will reimburse for on-line courses.

Best practice: Accreditation ensures that the education provided by institutions of higher education meets acceptable levels of quality. The most reliable education institutions are recognized by the Department of Education, which provides a searchable database. This database includes approximately 6,900 post secondary educational institutions and programs.

How will you retain your employees after getting their degree?

Once the employee has gained the knowledge to further their skill set and expertise, you want to keep them around so you can benefit from the education.

Instituting an Educational Assistance Reimbursement Agreement is one approach to retain your employees. This requires the employee to pay back the tuition, should they choose to leave the employer within a specified amount of time – usually one to two years. Employees are generally not obligated to refund the company if the termination of employment resulted from a job elimination or workforce reduction. Legal counsel should review your reimbursement agreements prior to implementation.

Another point to consider is that the employer benefits when an employee is more educated, but an employer cannot always promote an employee once they’ve completed the courses or earned their degree.

Best practice: Include wording in your policy (see suggested text below) to inform the employee of the company’s objective.

“While education assistance is expected to enhance employee performance and professional abilities, the company cannot guarantee that participation in formal education will entitle the employee to automatic advancement, a different job assignment or pay increase.”

Providing tuition reimbursement is a valuable benefit to employees. It can assist in both attracting and retaining top talent. ERC Members can contact the ERC HR Help Desk for sample policies, forms, or any other questions you may have that’s related to implementing a tuition reimbursement program. 

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