Can Tuition Reimbursement Benefits Save Your Business Money and Deliver a Productive Workforce? Big Business Says, “Hell, Yeah.”
Never doubt that big corporations make investments only when they’re absolutely certain of its value to their business. In 2018, Wal-Mart began offering educational assistance taking its lead from both Starbucks and Chipotle. Both the coffee chain and food franchise restaurant began to offer tuition reimbursement benefits three years earlier as an enticement to reverse high employee turnover rates.
But they’re not the only ones mulling over their employee’s educational and training benefits. According to a GMAC (Graduate Management Admission Council) survey, 66 percent of corporate recruiters have plans to increase their employee education budgets. Another survey from SHRM showed that 51 percent of companies offer undergraduate tuition reimbursement, and 49 percent offer graduate tuition assistance. The survey also reported that the increase resulted from the employment market improvements after the Great Recession of 2008. By 2014 the recovery was in full swing, and organizations began to dust off their benefit packages once again. Is there an advantage to providing educational benefits to employees? Or is it just another ploy for media attention? Should your business make tuition reimbursement programs a priority too? Below are some of the reasons you may want to take a second look at your educational and training benefits for your business.
Employer-funded Educational Assistance Programs Maximize Retention
What you already know is that employee education, or tuition reimbursement programs, create loyal workers. But, what you may not believe is that it also creates real value by increasing profits and improving employee retention eliminating the need to double-down on recruitment efforts.
In a CNBC report, a Starbucks spokesperson said that half of the employees who graduated from their educational assistance program stayed with the company. Starbucks employees who enrolled in the program were 1.5 times more likely to stay and were promoted at 2.5 times the rate of those who were not enrolled.
Another example of recruitment cost savings comes from a study done by the Lumina Foundation. In the study, Cigna, a health insurer, saved $1.29 in recruiting costs and turnover for every $1 the company put into its education program. Overall, employees in the program were more likely to stay, receive promotions and earn higher income than their colleagues who did not participate in educational assistance.
Employer Educational Assistance Attracts Top Talent If your business is looking to attract Millennial and Gen Z workers, there has never been a better time to revamp your company’s tuition reimbursement benefits. Why? Sixty-two percent of HR managers believe that the difficulties they face retaining Gen Z and Millennial workers could potentially slow business growth, limit productivity, and increase hiring costs according to an Allegis Group’s report.
Even Gallup’s State of the American Workplace report aligns directly with the beliefs of those HR managers surveyed by the Allegis Group. In Gallup’s report, 45 percent of Millennials would change their current job for a position with an organization that provides tuition reimbursement benefits. To make a comparison, only 24 percent of Baby Boomers and Gen X respondents would leave their jobs for the same incentive. Since the Great Recession, trends indicate that advocacy for tuition reimbursement has risen 21 percent. Has your business made education or tuition reimbursement benefits a priority to keep pace with employee demand?
Tuition Reimbursement Programs Help Businesses Build a Competent Workforce from the Ground Up
There are two types of employers when it comes to building a workforce: those employers who search for talent from the outside and those employers who look to fine-tune and elevate the raw talent of the employees working for them now. It’s just one of the considerations leading many corporations to think twice about their existing or non-existent educational benefits. Another factor leading more firms to evaluate their benefits is that employers are finding that the actual education graduates receive does not meet their expectations in the workplace.
Overall, employers found new graduates lacked soft skills, such as effective communication, critical thinking, and collaborative skills, according to a report cited by Inside Higher Ed. Only 11 percent of employers in a Gallup-Lumina Foundation survey strongly agreed that new grads have the competencies that their businesses need. As a business owner, you have two options when considering how you want to shape your firm’s future workforce:
Hire an applicant with the advanced education you desire and train them on industry-specific or organizational competencies or,
provide existing employees, who already have the industry-specific or company knowledge, the training to adjust or improve their skills through an educational assistance program.
Either way, all your employees can benefit from tuition reimbursement, especially if you’re looking to groom competent personnel.
Employers Can Earn Tax Savings with Tuition Assistance Programs
Besides the savings we mentioned, tuition assistance can reduce employer taxes under the IRS’ Fringe Benefits Guide. The following is a quick overview of section 127 of the Internal Revenue Code. Be sure to consult a tax advisor before making any decisions about your benefits.
Section 127: Qualified Educational Assistance Programs
According to the IRS Fringe Benefits Guide, an employer can deduct up to $5,250 per year for each employee who qualifies for the employer’s educational assistance program. The program must meet the following requirements:
Employers must document their qualified educational assistance program in detail.
The educational assistance program must be offered as a benefit.
Eligibility not only includes current employees, but must include laid off or retired employees, employees on disability, and some self-employed individuals.
The educational assistance program must not include employees’ children or spouses.
Eligibility requirements cannot be defined as to favor employees with a higher salary.
Section 127 includes educational expenses such as equipment for class, tuition, supplies, and textbooks as long as those additional expenses qualify.
When you want to attract, engage, and develop top talent, your organization has a few decisions to make. Tax advantages, lower turnover rates, and a reduction in recruitment costs are all good reasons to revitalize a tuition reimbursement program. A comprehensive benefits package that includes educational benefits can play a crucial role in the longevity of your workforce and the success of your organization.
Reach out to Susan Word today to explore tuition reimbursement options today.
Disclaimer: Lynch Law Firm, PLLC does not provide tax advice, nor is this information intended, nor should it be taken as tax advice. Any tax information mentioned is merely a summary of our understanding and interpretation of the current tax regulations. Always seek a tax consultant for your particular organization before you make a decision.