Now, gentle reader, just because the top line mentions IRS tax code, please don’t judge an article by its rather dry title. This week we discuss a tax benefit that has the potential to help businesses and employees alike.
Hiring and training frontline workers is one of the most persistent operational challenges facing employers. More than just the wages, the recruitment advertising spend, screening, interviews, background checks, onboarding and training add up quickly. Industry data shows that the cost per hire in the United States currently averages several thousand dollars and varies widely by role, seniority and industry context, with figures around $4,000 to $4,700 not at all uncommon when direct and indirect hiring expenses are included. These estimates capture recruitment fees, applicant tracking system costs, lost productivity and onboarding overhead, among other components of filling a position. Tracking cost per hire in this manner allows business leaders to plan budgets, make informed decisions and compare recruitment efficiency over time and makes it easier for employers to search for practical ways to offset those expenses.
Source: https://www.aihr.com/blog/cost-per-hire/
US tax policy offers a well-defined but underused mechanism that can help employers manage the financial impact of growing workforces. Section 127 of the Internal Revenue Code refers to an educational assistance program that employers can establish to provide educational support to employees on a tax-favored basis. Under this provision, employees may exclude from their gross income up to $5,250 of qualifying educational assistance per calendar year when that assistance is furnished under a separate written plan adopted by the employer. The employer may treat its educational payments as deductible business expenses, while the employee receives the benefit without that amount being counted as taxable income.
Source: https://uscode.house.gov/view.xhtml?req=(title:26%20section:127%20edition:prelim)
A Section 127-compliant program will satisfy specific requirements, including eligibility criteria, a nondiscrimination framework and exclusive availability to employees as defined under the statute. The Internal Revenue Service has published a sample plan document that employers may adapt when creating a 127-compliant educational assistance program. Section 127 generally covers tuition, fees, books, supplies and similar education-related costs. Under current IRS guidance, it may also include payments toward qualified student loan principal or interest through the end of 2025, unless extended by future legislation.
Source: https://www.irs.gov/pub/irs-pdf/p5993.pdf
The beauty of Section 127 is that it creates a dual benefit. From the employee’s perspective, it reduces the personal tax burden associated with education support provided by an employer. From a business perspective, it makes investment in workforce skills more affordable by lowering the net cost relative to taxable compensation so that companies are encouraged to invest in skills that support internal mobility, compliance requirements or readiness for frontline roles.
Frontline roles in sectors such as healthcare, logistics, manufacturing, and hospitality often experience high turnover and evergreen hiring cycles. The cost to attract and onboard and develop workers in these functions has increased alongside labor shortages and sharpened competition for talent. Less obvious expenses, such as manager time spent interviewing, inconsistent productivity during ramp-up periods and losses tied to vacant positions place additional pressure on operating budgets. Understanding these cost drivers helps explain why employers are actively looking for alternatives to traditional recruiting methods.
Source: https://www.workstep.com/resources/how-to-calculate-frontline-worker-turnover-costs/
Section 127 is so much more than an employee perk; the program can help facilitate workforce planning for employers. Rather than offering tuition support only as a general benefit, some businesses are exploring how to use education assistance to bolster specific operational needs. With Section 127, employers can fund learning paths connected to the skills required for frontline roles. When employees complete specific training aligned with these needs, the employer gains a workforce that is better prepared for the demands of the job and quantifiably improves employee retention. Because these payments remain deductible and, up to the statutory cap, excluded from employee income, the overall cost to the employer is lower than providing the same value through wages alone.
Source: https://legalclarity.org/what-is-an-irs-section-127-educational-assistance-plan/
Despite these advantages, many employers hesitate to expand or formalize Section 127 programs due to administrative complexity. Establishing a separate written plan that meets IRS requirements involves drafting documentation, communicating eligibility and monitoring compliance with nondiscrimination standards. While the IRS sample plan helps clarify its expectations, employers still need a consistent way to manage participation, reimbursements and record keeping. These operational details can be especially burdensome for organizations with large, distributed or high-turnover frontline workforces.
Source: https://www.mybenefitadvisor.com/siteassets/documents/2024/q3/frequently-asked-questions-about-educational-assistance-programs—071924m.pdf
Another challenge is that education assistance often operates independently from hiring and workforce planning systems. Tuition reimbursement programs may exist alongside recruiting and training efforts without a clear connection between them. As a result, leadership teams may struggle to see how education spending can affect hiring speed, workforce readiness or, importantly, retention. When learning activities are directly connected to job requirements and completion milestones, the value of education assistance is easier to evaluate and justify financially.
In frontline environments, Section 127 can contribute to shorter ramp-up times and improved retention among employees who see tangible investment in their development. Employers benefit when education assistance supports practical skills and role readiness rather than just general coursework with limited operational relevance. Measuring these outcomes remains difficult for many organizations because training data, benefits administration and workforce metrics are often maintained in separate silos.
How could Section 127 benefits be applied with greater efficiency? What if employers had tools that simplified plan administration, tracked eligibility automatically and maintained clear records of approved expenses? What if reimbursement workflows, participation tracking and reporting were handled as part of everyday operations, much like payroll or general benefits enrollment? Capabilities like these would make it easier and much more cost-effective for employers to treat educational assistance as a structured workforce development function rather than an isolated benefit.
For frontline-heavy industries that hire at scale, practical administration and outcome visibility could change how education assistance contributes to workforce preparedness and stability. Connecting Section 127-supported learning to metrics such as cost per hire and time to productivity would allow business leaders to evaluate impact using familiar business measures. Tracking cost per hire, which includes recruitment costs, internal HR effort and onboarding time, offers a useful reference point for understanding how education assistance programs are helping employers see the value of initial training programs as they apply to front-line employee retention.
Source: https://www.aihr.com/blog/cost-per-hire/
In a labor market defined by sharp competition and rising costs, employers are under pressure to use every available resource wisely. Section 127 provides a lawful and established way to reduce the effective cost of workforce development. Organizations that structure education assistance around practical skills and maintain clear administrative processes will likely find that the benefit can produce measurable value beyond tax savings alone.
As companies review workforce strategies in the new year, revisiting Section 127 through the lens of frontline hiring and training could reveal new possibilities. With the right administrative foundation and a focus on outcomes, educational assistance can serve as a practical mechanism for managing hiring and training expenses while supporting employee growth in meaningful, business-relevant ways.
See? Now that wasn’t so bad, was it.
