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Tuition Reimbursement Program Options for Small Businesses

An employee tuition reimbursement or assistance program isn’t just “nice to have”, it’s one of the building blocks of a successful benefits strategy, helping you attract, retain and develop top talent. More than half of employers operate some kind of tuition assistance program, according to a recent SHRM survey. Don’t think this only applies to big businesses—there are options for those operating on smaller budgets too.

How do Tuition Reimbursement Programs Work?

When funding employee education programs, employers have too options. First, tuition assistance: providing funds up-front and without conditions. Alternatively, businesses can offer tuition reimbursement, i.e., only releasing funds when recipients hit certain goals, like completing their class or achieving a certain grade.

Modern education comes in many different forms. Employees don’t necessarily have to attend a brick-and-mortar university or night school. Online courses and certifications offer a quicker, cost-effective alternative. Small businesses can further cut costs by negotiating bulk discounts when multiple employees take the same course.

Why Small Businesses Should Consider Tuition Reimbursement Programs

Let’s consider a few of the reasons tuition reimbursement programs can be such a useful tool for small businesses.

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  • Employee Engagement

    The history of HR is all about companies realizing employees are after more than just a paycheck. They want work they care about, and employers who care about them. Incentivizing continuing education shows a commitment to your people and, in doing so, wins increased commitment from them.

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  • Reduced Turnover
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    In the long term, a successful tuition reimbursement program pays for itself. Here’s why: by supporting employees’ education, you win their loyalty. Cutting down on voluntary separations is a big boost for the balance sheet, considering it costs an average of $4,129 to replace just one employee—and even then there’s a chance a new hire won’t be a good fit, and you’ll have to replace them too.

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  • Talent Development
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    When hiring is expensive, your best bet is to double down on your current workforce. Tuition reimbursement isn’t just a benefit to employees. Whatever skills and experience an employee gains, they bring back to their company and share with their colleagues. A more educated team means higher productivity, boosting your bottom line.

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  • Tuition Reimbursement is Tax-Exempt
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    Thanks to Section 127 of the IRS tax code, tuition assistance is tax-exempt up to $5,250 per employee per year. It’s not just tuition: any books or supplies necessary to the complete the course also count as qualifying expenses. To take advantage, you’ll have to set up a Qualified Education Assistance Plan, open document the process in writing and make the program available to all employees.

Are There Downsides of a Tuition Reimbursement Program?

Reimbursing tuition is all about helping employees reach their potential. You should consider, though, whether you have jobs and opportunities available for better educated employees. If you’re educating employees beyond what you require of them, they might not be satisfied staying in their current role.

But think of it this way, as the old joke goes: don’t worry about what happens if you train employees and they leave; worry about what happens if you don’t train them and they stay.

How to Set Up a Tuition Reimbursement Program

It’s crucial to set up your tuition reimbursement program in the right way. Your first job is to make sure it complies with IRS Section 127 regulations (for that, it’s best to consult a financial advisor). Here are some other questions you’ll have to ask yourself when creating the program:

  • How many employees per year will receive educational support?
  • At what level will you cap support per employee per semester/year?
  • Will employees first have to apply for federal financial support?
  • Will there be a minimum tenure for employees to be eligible to apply?
  • How will the application procedure look?
  • Who will have final say on which employees are granted support?
  • What courses will be eligible for tuition reimbursement?
  • Which educational institutions will be eligible for tuition reimbursement?
  • What grade or achievement will be required to qualify for reimbursement?
  • Are employees required to remain in their role for a year or two post-graduation?
  • If employees leave the company voluntarily, how much of their tuition must they repay?

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