Tuition Assistance Program Best Practices

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How do I determine the best reimbursement dollar limit?

According to Peter Cappelli in Why Do Employers Pay for College?, providing employees with tuition reimbursement enables you to "hire better quality, more educated, and more productive employees." This extra productivity, Cappelli states, "makes it economically feasible to pay a large portion of employees' tuition bills."

But just how large of a portion should you be paying and should the amount be the same for every employee? Read on to learn how you can effectively determine the right reimbursement limit for your company.

Know Your Non-Taxable Limits

You can provide your employees with up to $5,250 in tax-free education expenses per year. If you stick to this amount or less, you won't need to include the reimbursement amount on your employees' W-2 forms and your employees will not have to include it on their income tax returns either.

However, if you want to offer more than the current IRS limit for non-taxable tuition reimbursement, you should make it clear to your employees that they will be responsible for taxes and you will be required to include it on their W-2.

To avoid any possible confusion or frustration amongst employees, HR should go over the following benefit-exclusion guidelines as outlined by the IRS website with each employee.

Educational assistance benefits do not include payments for the following items:

  • Meals, lodging, or transportation.
  • Tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
  • Courses involving sports, games, or hobbies unless they have a reasonable relationship to the business of your employer, or are required as part of a degree program.

Industry Standards for Tuition Reimbursement Limits

Keep in mind that just because a company offers X amount in tuition reimbursement, doesn't mean you should too. There is no 'one size fits all' when it comes to determining the limit that is right for your company – and your company's budget.

That being said, here are five tuition reimbursement averages, broken down by industry, provided by Comp Data Surveys.

  • Manufacturing and Distribution: $4,689 per year
  • Utilities: $4,227 per year
  • Banking and Finance: $3,869 per year
  • Healthcare $3,104 per year
  • Hospitality: $2,757 per year

Knowing what others in your industry are offering is crucial, but it's also beneficial to see what similarly sized companies allot for education expenses.

For example, Bank of America reimburses up to the max for non-taxable tuition reimbursement, ($5,250) while Boeing's limit is a firm $3,000. These two numbers are substantially different, yet both are large companies with a large amount of employees.

Adjusting Limits Based Upon Employee Status

Before you can accurately decide on your tuition reimbursement limit, you'll need to determine if you will offer this benefit to both full-time and part-time employees (with or without a limit adjustment) or full-time only - and what criteria employees will need to meet to successfully receive this benefit.

This is where things can get complicated for benefit administrators, as the more criteria you set, especially if it differs from employee to employee, the harder this benefit becomes to manage. Whether you use tuition reimbursement software or not, the more you complicate this benefit, the more likely it is to cause your company a loss in productivity.

Does your budget allow you to offer tuition assistance to both full- and part-time employees? Or do you prefer to only offer tuition reimbursement to full-time employees only - regardless of a large or small budget?

Verizon Wireless offers up to $7,000 per year for full-time employees and up to $4,000 per year for part-time employees, while Home Depot offers up to $3,000 per year for full-time employees only.

Using Competitive Analysis to Determine Your Reimbursement Limit

Who are your main competitors? Do they offer tuition reimbursement? And if so, how much and what are the eligibility requirements?

Knowing the answers to these questions will show you if your limit needs adjusting and if the criteria you set aligns with your competitors. If your competitor doesn't offer tuition reimbursement at all, your company already has an edge. If they do, but their limit is on the low end or their eligibility criteria is complicated and confusing, use that information to make your reimbursement policy more desirable to potential and existing employees.

While the final amount(s) you decide upon will largely be determined by your budget, competitive analysis will reveal if what you're offering is comparable, or better, than your competition. It will also enable you to develop a stronger reimbursement policy than you'd be able to by relying on industry standards alone, which will help you attract and retain top talent year-round.

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