A Guide to Understanding Training Reimbursement Agreements
A training reimbursement agreement is a contract between an employer and an employee in which the employee agrees to pay back the company for training costs if they leave the company within a certain period of time. Ruthie Chapman, the Queen of Costs, uses these agreements to help companies retain valuable employees, which saves them from hiring and training a new employee who may leave just as quickly, or from spending more of their money on training unproductive employees.
The biggest reason that companies utilize training reimbursement agreements is because it makes sense for the company financially. Training employees is beneficial for the company because it teaches employees new procedures and systems that the company has adopted in order to increase profitability. However , if after training the employee leaves the company or is determined to be unproductive, then all of that money spent training the employee and all of the time spent training the employee is wasted. For instance, if costs associated with training an employee are $20,000 and the employee earns $10 an hour and spent 200 hours training, that company just spent $40,000 on an employee who was only worth $20,000 to them. Companies use training reimbursement agreements as a way to recoup that money they spend on training employees so that they don’t only make money when the employees are performing well, but also make money when the employees leave or are fired.
Common Provisions in a Training Reimbursement Template
When devising a training reimbursement template, certain clauses are crucial to ensure clarity and enforceability. This section outlines the critical elements that should be incorporated into any such agreement. Cost Coverage: Any training reimbursement agreement should outline all eligibility requirements and criteria for cost coverage. In particular, what types of training will be compensated, who may participate in the program, and whether the reimbursement is to be used for classroom training, on-the-job training, or both? Reimbursement Terms: The agreement should clearly specify the reimbursement terms. Will the reimbursement be made upfront, at the end of training, or after a probationary period? Will the amount be reimbursed incrementally if the employee separates employment prior to completion of a required term of employment? Repayment Circumstances: If the employee leaves the company prior to the agreed-upon term of separation, how much will it cost to leave – for both the employee and the company? Will the amount vary with the length of time employed after training? Will other mechanisms be employed if the employee terminates or if the employer terminates? Will it matter how the employment is terminated – e.g., voluntary or involuntary?
Legal Issues and Compliance
Employers in the US may be subject to federal, state or industry-specific laws that influence how training reimbursement agreements should be drafted and enforced. Companies should ensure that their training reimbursement agreement template complies with all applicable laws, including:
Moreover, training reimbursement agreements are frequently challenged under the common law principle of contract. Failure to guarantee the employee a certain period of employment or to provide adequate notice of termination without cause can lead to disputes as to whether the agreement constitutes an enforceable contract.
A training reimbursement agreement that does not clearly articulate an employee’s obligations, or is not supported by other employment agreements, is not enforceable under many US states’ contract or employment laws. It is also vulnerable to attack by employees determined to pursue it.
Tailoring Your Template to Address Specific Requirements
Employers may be tempted to simply copy and paste a training reimbursement agreement template and use it as-is. However, carefully customizing the training reimbursement agreement to fit the specific company creates a greater chance that the terms will be upheld in court, if challenged. Without customization, a court may determine that a one-size-fits-all approach is disadvantageous or unfair to employees.
For example, companies should consider the type of training programs for which they are seeking reimbursement. If the training program is completed in a few months or is widely available among other institutions, it may not meet the employer’s return on investment threshold. Though employers may choose to waive repayment of all-training costs for employees who have completed their service requirements, employers should still include some payment obligation in the event the employee voluntarily terminates employment before the end of the term .
Alternatively, if the training program is advanced professional development, such as obtaining a professional license, graduate degree, or an executive education program, the employer may want to allow the employee to complete the program but be obligated to pay only on a pro-rata basis according to how much of the contract term the employee has completed. Companies who invest heavily in professional development may wish to forego any repayment obligation for employees who are promoted to management, though may also include a provision requiring repayment if the employee solely pursues the training for personal reasons.
Also, companies may want to consider how to handle tuition benefits for part-time employees. If the company offers tuition benefits to all employees, without regard to full-time status, a court may determine it cannot enforce the repayment provision against an employee who works less than full-time. But, even if companies do not include part-time employees in their training reimbursement agreements, the company may wish to offer part-time employees the same tuition assistance that it offers to full-time employees without the repayment obligation.
Best Practices for Implementation
For the reimbursement agreement to be effective, it is important to manage employee expectations. Distribute copies of the policy to all employees who sign the policy and all employees assigned training under the policy. Include the policy in the employee handbook. The policy should state that signing the policy does not grant employees the right to participate in training programs. Management has discretion to determine which employees will participate in training. Once an employee signs the policy, however, he or she should be given priority if management determines there is a vacancy in a training class. Employers should train managers on implementation of the policy and the importance of treating everyone fairly under the policy.
Sample Template and Additional Resources
A basic training reimbursement agreement template is provided below for reference. This is merely a starting point – every employer should create a customized and specific training reimbursement agreement because the terms of such agreements vary on many levels.
Sample Training Reimbursement Agreement
This Training Reimbursement Agreement ("Agreement") is entered into as of [date] by and between [employee] ("Employee") and [employer] ("Employer").
1. THE PLAN.
(a) Pursuant to this Agreement, the Employer will reimburse Employee for the cost of tuition for courses undertaken by Employee at a qualified [school].
(b) The following terms shall apply to Employee’s participation in the Tuition Reimbursement Program (the "Program"):
(i) Educational courses taken by Employee must be pre-approved by Employer in order to be eligible for reimbursement under the Program. In determining whether a course is appropriate for reimbursement under the Program, the Employer may consider whether the course relates to Employee’s employment with Employer, whether Employee is in a position to attain a promotion upon successful completion of the course, or worker safety or training and development generally.
(ii) Employer will reimburse Employee for tuition expenses on a [specify timetable] basis for all courses satisfactorily completed by Employee.
(iii) To be eligible for reimbursement, courses must be satisfactorily completed within [X] months of the date of enrollment. A passing grade is required prior to reimbursement.
(iv) Employee agrees that any tuition reimbursement payment is subject to withholding for all applicable social security , federal, state, and local taxes.
(c) Following enrollment in the Program, Employee agrees to remain employed with Employer until the end of the term of employment. If Employee terminates or voluntarily resigns employment with Employer within the period specified in [Section] 1[b][iv] above, Employee must immediately repay all tuition reimbursement received. Employee authorizes Employer to deduct the amount of tuition reimbursement paid to Employee from Employee’s last paycheck.
2. EXECUTION
By signing this Agreement, Employee acknowledges that he/she has read the Program rules and understands the terms and conditions, and that Employee agrees to be bound by the terms and conditions of this Agreement.
The provisions of this Agreement shall be governed by and construed in accordance with the laws of [state], without reference to its conflict of laws principles. This Agreement sets forth the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior writings or understandings with respect thereto. No modification of any of the terms of this Agreement, no waiver of any rights under this Agreement, and no compromise regarding the interpretation of this Agreement shall be valid unless in writing and signed by the party benefited under the modification and, if applicable, be on behalf of the Employer.
For selection of additional agreement forms and templates, see the list provided by the Society of Human Resource Management (SHRM)