Is an Education Reimbursement Program a Good Move for My Business?

Some of the largest employers in the world are now reimbursing their employees’ education expenses. Companies like Target, Disney and the world’s largest employer, Walmart, all reimburse 100% of tuition and books for employees who qualify.

Over a five-year period, Disney and Walmart plan to invest $150 million and $1 billion, respectively, in employee education. But can smaller-scale businesses afford to offer the same benefits?

Tuition benefits aren’t just for large-scale employers. As of 2019, 56% of employers offered assistance with education expenses. Businesses that employ even fewer than 50 people can offer tuition benefits that help them stand out amongst competitors when it comes to attracting and retaining talent.

Here’s what you need to know about tuition reimbursement and how to decide whether it’s a good move for your business.

What you need to know about tuition reimbursement

Tuition reimbursement programs can solve a number of problems for both employers and staff.

In 2020, student loan debt reached a record high and is now growing faster than any other type of debt. Employees say that finances are their biggest stressor at work, with student loans being a primary concern.

In addition to alleviating stress and improving productivity, tuition benefits address some of the biggest concerns identified by HR officers: upskilling, achieving diversity and inclusion goals, providing competitive benefits and retaining talent.

Here are some additional benefits to providing an education reimbursement:

• Increase tax deductions for your business
• Reduce employees’ taxable income
• Support employee transition into management roles
• Increase employment satisfaction
• Increase employees’ economic mobility
• Reduce staff turnover

7 question to ask before offering reimbursement

There’s more than one way to support employee education. Reviewing these questions will help you determine the best option for your business.

Will I only reimburse classes related to my business?

It’s not uncommon for reimbursement programs to include conditions. Over half of employers only cover courses related to business, jobs or work. Reimbursing these areas of study could benefit both your company and employees:

• Skilled trades: Facilities maintenance, industrial maintenance, HVAC/refrigeration, electrical, plumbing and construction trades
• Digital courses or certificates: Data fluency, decision making, design thinking, UX/UI and technology

Alternatively, your business could offer other incentives including scholarships and graduation bonuses or funds for language learning, college credits or SAT prep.

Do education reimbursement programs support my business goals?

Reimbursing education expenses can be a valuable tool for attracting and retaining a more diverse workforce. According to Target, for example, an education reimbursement program is part of their effort to create an “equitable and inclusive workforce” and increase financial freedom for team members.

How do these programs support diversity, equity and inclusion goals? Student loan debt disproportionately affects U.S. graduates by race and gender, with women carrying 66% of all student loan debt and Black graduates carrying almost twice as much debt as white graduates. When employers provide education funds, they provide real assistance for those who are most heavily burdened by the cost.

Will I pay full tuition, or just a portion?

The more an employee is required to pay, the greater the hurdle to participate in your program. However, splitting the cost can increase a student’s motivation to complete their education.

The average American believes it’s fair to share the cost of training and education with their employer and the federal government. Walmart’s Live Better U program models one possible solution: requiring employees to contribute $1 per day while pursuing a certificate.

Your contribution can also be combined with federal tax benefits to create a valuable solution for your staff. In 2012, The American Taxpayer Relief Act created a pre-tax deduction of up to $5,250 for education per year, and in 2017 that amount was increased to $11,500.

Should I require employees to work for me after completing courses?

Not necessarily. In 2019, about 45% of employers had “length-of-service requirements,” and more than half had a payback requirement for employees who left within 24 months of completing their education. But the majority of employees say that tuition assistance increases their likelihood of staying, regardless of whether or not there’s a length-of-service requirement.

How much will it cost me?

Training, retention and turnover already have a direct impact on your bottom line. In fact, replacing a salaried employee is estimated to cost, on average, six to nine months of the salary for that role.

On the other hand, educational benefit programs can take significant effort to establish and maintain. When determining the cost of an education benefit, you’ll have to take many variables into account, including tax consequences and whether or not the program will be managed in-house.

The Society for Human Resources Management (SHRM) suggests seeking guidance from attorneys, accountants, consultants and HR professionals to establish your program. See SHRM’s Toolkit for Designing and Managing Educational Assistance Programs for helpful steps.

You can also consider a number of more cost efficient solutions (see below), but if cash flow is still a hurdle to improving your benefits package, a business line of credit might be the solution.

How much can it save me?

In an often-cited case study, Cigna saw a 129% ROI on its Education Reimbursement Program over a two-year period.

Guild Education reports that its partnering companies experience 208% ROI for tuition assistance programs and a 27 percentage-point increase in employee retention.

For Chipotle, a Guild partner, employee retention nearly doubled among those enrolled in its tuition assistance program within five months of initiation.

It’s not certain that similar results would be achieved by a smaller company or through a different program, but if qualified, tuition assistance can create a tax deduction for your business. An adjustment of $5,250 to employee gross pay amounts to a 7.65% payroll tax savings for both the employer and employee.

Are there cost-effective alternatives?

Yes. For a lower-cost alternative, consider one or more of these other meaningful education benefits:

• Allow employees to convert PTO or other existing benefits into student loan repayment funds.
• Set a limit on the amount of tuition reimbursement for each eligible employee.
• Tie your employer retirement match to student loan payments instead of retirement contributions. As an added incentive, the retirement match is not considered taxable income, unlike student loan repayment funds.
• Provide access to internet-based learning platforms like Udemy or Courser.
• Offer tuition discounts at partnering schools.