With companies like Aetna Inc., Fidelity Investments and Penguin Random House offering programs to help reduce student debt, there’s a growing trend in the United States towards assisting employees with their loans. And with tax reform currently on the table south of the border, a U.S.-based advocacy group is urging the government to provide an exemption for assistance with student loans in order to help ease the financial burden even more.
In Canada, however, most university graduates entering the workforce with student debt are still unlikely to get repayment assistance from their employers, so whether the benefit is taxable or not is hardly an issue at this point. Some companies, however, are stepping up.
Dartmouth, N.S.-based SimplyCast Interactive Marketing Ltd., for example, introduced a program in 2015 that provides a salary top-up benefit to cover the minimum monthly student loan payment, according to president and chief executive officer Saeed El-Darahali. While the benefit is taxable, that hasn’t been an issue, he says.
“I’m really disappointed that more Canadian employers still aren’t helping their employees become debt-free,” says El-Darahali. “The program has had a huge impact on recruitment to our company. We doubled our applications. However, we can’t tell if it makes people stay, since we believe our total environment is conducive to retaining employees.”
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Over the next few years, however, more Canadian companies may follow in SimplyCast’s footsteps. According to a Benefits Canada survey published this year, a large majority (81 per cent) of Canadian executives expect that in order to attract and retain employees in the future, organizations will need to offer more options around their benefits. Nearly three in 10 (28 per cent) identified assistance with paying back student loans as a benefit that will become more common in the future.
Assistance in paying off student loans also fits into organizations’ growing emphasis on employees’ financial well-being, says Wendy Poirier, growth leader for health and benefits in Canada at Willis Towers Watson. Financial security is one of the key trends transforming well-being programs, according to a Willis Towers Watson survey from 2015.
“The interaction between stress, mental health and financial wellness is known to affect business through a drag on productivity,” says Poirier. “That’s a big impetus in the U.S., where organizations are now putting emotional and mental health at the top of the list. It’s the same in Canada, where a lot of employers are really focusing on mental health in the workplace and there is recognition that financial stress puts mental health at risk.”
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She notes that a lot of her Canadian employer clients ask about student loan repayment because they’ve heard about the U.S. trend and wonder if they could do the same here. “I could see Canadian employers taking a more holistic approach when it comes to something like student loan repayment and looking at this as just one aspect of financial health,” she adds. “Perhaps it could be included as part of a wellness spending account, which is simply a taxable spending account.”
When it comes to the tax issue, the Canada Revenue Agency deems any workplace benefit that benefits the employee as taxable.
“We get a lot of questions about whether reimbursing for tuition for employees who go back to school to get their MBA or take another course is taxable,” says Dov Begun, partner and tax expert at Osler Hoskin & Harcourt LLP in Toronto. “Whether it is taxable depends on whether the education benefits the employee or the employer, and CRA says it is up to the employer to make the determination. But if someone brings student debt to employment and the employer offers to pay off the student loan, it is treated as a taxable benefit.”