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I often get asked by small business owners “Will tuition reimbursement really help my business?”. It’s usually followed by another question like “What’s this going to cost me?”
I usually follow up those question from owners with one of my own, “On a scale of 1 to 10, with 10 being the highest, how well does your business attract and keep employees?” For anyone who rates themselves a 10, I typically applaud their efforts and maybe even offer them a job! But, for the rest of us business owners, we typically need to do better at hiring and retaining employees. Tuition reimbursement can help you attract and keep employees, and it doesn’t have to be expensive.
Do Employees Really Want Tuition Reimbursement?
So, let’s start with this first question, “Do employees really want tuition reimbursement?” Tuition reimbursement is like many other benefits in that you want to assess the value it has for your employees. If you spend ten minutes searching the web, you’ll quickly see statistics about how much employees love tuition reimbursement as a benefit. Here are a couple of my favorites:
- 76% of employees said they are more likely to stay with their employer because of its tuition reimbursement benefit. (Bright Horizons)
- 45% of Millennials report they would change their job for tuition reimbursement benefits. (Gallup)
- 84% of employees say that tuition support significantly influenced their choice to join their businesses. (Businesswire.com, 2018)
The list goes on. But, this is the more startling statistic – 80% of working adults are interested in going to school, only 40% know their employer offers a tuition reimbursement / assistance program and a smaller fraction — 2% of employees — actually participate in these programs. (InStride).
There’s a reason for this. It’s because the programs are often too complicated for employees and perceived to be expensive by employers. Employees throw up their hands trying to figure out how to use the benefit, and employers don’t promote it because of the perceived cost.
But, I’m here to tell you there is a much simpler way to deliver tuition reimbursement. We offer a program for employers; it doesn’t have to cost anything; and it can be deployed in a week. And, whether you use our program or not, there are several ways employers can re-think the approach to tuition reimbursement to create more value from the program – for both employee and employer.
How Can Employers Re-Think Tuition Reimbursement?
So, how do you design a cost-effective tuition reimbursement program for your business that your employees actually use? Here are a few things to consider:
Reframe your mindset
Many business owners think that tuition reimbursement is really expensive. Because of the expense, these business owners have a program, but they make the program too hard to qualify for or really difficult to get information about taking the next, practical step. You can see for yourself. Search the web for “[Any Company Name] tuition reimbursement” (without the quotes). Over 70% of companies offer tuition reimbursement. Most searches direct you to the HR manager, who rarely knows much about the first few steps of the process – choosing a college, picking a degree program, or if a program will help an employee reach their career goal. Instead, HR managers push a form at employees focused on paying for college, which is usually a step that comes much later in the process of going back to school. Employees read this tuition reimbursement form, and rarely understand what the form actually means to them. The result is the 2% participation rate you see in these programs.
Instead, business owners want to design a program in which employees will participate. And, to get people to participate, you have to start at the beginning – with assistance choosing a college, a program, and the practical steps to go through the process. Start here to increase employee participation. Higher participation equals higher employee retention.
Align your tuition reimbursement to your business
The next step is to structure your program to meet the needs of your business. This means determining the amount/cost of the reimbursement and the timing. For, the amount of the reimbursement, we recommend calculating 10% of the gross annual wage, and round down to the nearest thousand. For example, if you employ hourly workers, at $12/hr, and full time is roughly 2,000 hours a year, that equates to an annual salary of approximately $24,000. 10% of that is $2,400, and then we round down, and recommend offering $2,000. You can also think of that benefit as roughly $1 per hour worked. We recommend rounding down, as we find that you’ll get a similar amount of employee goodwill for $2,000 vs. $2,400. Might as well pay the lower amount.
If you have salaried folks that make $60,000 in annual salary, then 10% is $6,000, or roughly $3/hr on a full-time basis. But, here, we recommend only going to the maximum tax benefit amount, which is currently $5,250. You don’t need to offer more than that, as that’s the competitive market rate. In this case, employers may want to round down to $5,000. However, we also find that many employers at this level often provide the full tax-deductible amount of $5,250, so you may need to meet that level based on your competition.
As an aside, this is tax deductible to your business and to your employee. Make sure to factor in the taxes when you account for the cost of the benefit in your business.
Now, think about timing. If you are like most businesses, it’s better to pay later. We recommend a twice annual review, max contribution amount you calculated above, divide by two for each review period.
But, this next part is what matters. As an employer, you want to offer tuition reimbursement because you want to pay after the employee has stayed with your company. Employee signs up for college program, spends a semester going to school and working for the business, then you pay. This contrasts with a tuition assistance program where employer pays up front on behalf of the employee (that can leave). You certainly can pay upfront, and then create different ways to claw back the money if the employee doesn’t meet certain requirements, but this often just adds complexity that you typically don’t need.
So, how does the employee pay for school before the reimbursement? The employee uses financial aid through the federal government. When presented well to employees, this creates an incentive for the employee to work hard at completing the program vs a perception that the employer will cover expenses regardless of performance. If your employees apply for financial aid, and they make less than $30,000 annually, they typically get a full Pell grant, which covers $6,895 of educational expenses in 2022-2023. Grants don’t need to be paid back, so we always recommend that if you can qualify for this money, you should take it. If there’s any additional expense beyond the Pell grant, students take out a loan. Then, when the reimbursement comes, they repay whatever relevant portion of their loan.
This last part is what makes all the difference. Seek simplicity in the options available to employees, and a partner who can explain the options to your employees, so you don’t have to. Operation Graduate, for example, has a whole team of Graduation Specialists (which is the title our representatives hold) that can explain various college and funding options to your employees. Our service is low to no cost for employers. We also limit the school choices, to simplify the options to chose from. We find it’s easier to have 2-4 strong, cost effective, college options vs. dozens. Too much choice can often overwhelm employees.
It also doesn’t have to be Operation Graduate as your partner. You could partner with a local college. Call up the college’s CFO, and tell them you want to send your employees to their school, and there’s a good chance they have an established program and place to route you. There are also dozens of partners who will administer your tuition reimbursement program for you, usually for fairly minimal administrative costs. The key is to find one that distills the information down for your employees into simple, discrete options. And, for the employer, a partner should make it easy for you to administer the program.
As you work through the different college options for your plan, also keep in mind that students don’t need to pay more than $9,000-$12,000 a year for an undergraduate degree program. There are many, many strong college options at that price point.
Then, publish information about this benefit everywhere you can think of. In your payroll system, in your handbook, on your website, in your social media accounts. The goal is to make sure everyone knows about the program, and employees can easily participate. And, when your employees have success with the program, share their stories wherever you can. Word of mouth is powerful with this type of benefit, and employees seeing success will create more success.
If you build your tuition reimbursement program with these things in mind, you’ll will increase participation which will increase employee retention. Often, in a cost effective way that’s much easier for employees. And, if you need a hand, give us a call. We are happy to share our insights and help if we can.