Trends from the Trenches – Patterns in Faculty Benefits

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Trends from the Trenches – Patterns in Faculty Benefits

In a time of economic uncertainty and an anticipated teacher shortage, independent schools are searching for ways to attract and retain quality teachers. One way is to examine compensation structures for effective, creative alternatives to salaries determined by the discretion of the head or lock-step salary scales like those in public schools based on longevity and advanced degrees or credits.

Another, equally important way is to review and update the benefits package offered and how it is delivered. Schools that overlook the need to review and update their benefit offerings miss a potential opportunity to support faculty and to allocate precious resources in a way that allows the school to reap financial rewards as well.

New Directions in Benefits

Tuition Remission. The trend is away from tuition remission and toward need based financial aid where the faculty receives priority allocation in the granting of financial aid. Many schools will exclude the teacher’s own school salary from the need calculation. Schools that move away from 100% remission grandfather current staff. Many schools begin by first reducing remission to 50% (and after that additional support may be added from need based financial aid) and later, they eliminate remission entirely.

Tuition remission is a discriminatory benefit in that it sends a powerful amount of tax free money to a narrow range of teachers with children current enrolled at the school. On the other hand, tuition remission engenders long term teacher loyalty and prompts teachers to want a higher standard of teaching and accountability for fellow teachers because one’s own child is at stake.

Medical and child care reimbursement accounts. These are becoming more popular with many schools experiencing upwards of 70% participation, resulting in significant income and FICA tax savings for the employee and FICA savings for the school. Some schools continue to have medical “caps” on the amount that can be sheltered for medical reimbursement accounts. There is no federal limit, so such caps are a school decision. Almost 90% of independent schools today have medical and child care reimbursement accounts. Most are still poorly used.

Stipends. Schools are becoming more cautious about the rapidity with which they add extra curricular functions for which stipends are paid. These roles are proliferating, costing schools not only massive additional sums of money but undermining the concept that some degree of extra curricular assignment is part and parcel of the definition of a full time job for teachers in independent schools.

One School recently found that its elaborate extra curricular pay system (with 8 levels and three steps within each level) still resulted in teachers feeling that assignments were categorized unfairly in terms of time and money paid. The drive for equity and fairness sputtered out and resulted in back biting. “Fairness” within the independent school culture must include a definition of a full time job that goes beyond classroom teaching.

The “benefit bank”. This may work well in schools where a large number of teachers participate in the school’s medical insurance plan. A benefit bank caps the amount of money the school contributes to such a plan at, say, $5,000-$7,000. This money can be used to buy a less expensive policy, a mid priced policy or an “enriched” policy. Alternately, the money may be taken as taxable cash. It can also be used to buy other benefits such as additional retirement, or more life or disability insurance. Over time teachers will spend the money differently as their family needs change.

Long-term disability. Many schools have now reverted to having the employee pay the premium for long-term disability rather than having the school do it. The school gives the cash value of the premium to the employee, who may (or may not) buy the policy. If the school pays the premium, any disability income received is fully taxable. If the employee pays the premium, disability income is not taxable. Most schools using this approach have worked out ways that all employees are still covered by the policy.

Housing Issues: Many boarding as well as day schools are reviewing their current housing benefits to ensure fairness, equity, compliance with IRS rulings and intelligent management of housing “stock.” A few day schools have housing for half or more of their faculty. Often beneficiaries of housing have no formal plant, campus or student supervisory functions. Some of these schools may be charging solely the value of rent forgiven (the tax that would be owed for that value of rent forgiven.) Other day schools charge rent that is below market value. Both practices operate in a danger zone. If that rent is too far below (more the 5% below) fair market value, there is a risk of an income tax liability and subsequent penalty issue.

Many boarding schools provide off campus housing for faculty with no, or almost no supervisory responsibility. Many others provide on-campus, free-standing housing, and in exchange, the teacher supervises students for two hours per week in the dorm, or in study hall in the library one evening per week. Does this constitute enough supervisory value for the school to argue that this rent free house is not income to the teacher and thus, subject to income tax? Is the teacher’s periodic and “light” duty really worth $15,000 to $30,000 a year in what would normally be a taxable benefit?

Every boarding and day school teacher receiving free housing, or housing subsidized below fair market value should have a real, formal responsibility for supervision of building and plant and/or student activities on campus. This set of requirements should be written into the teacher’s contract as a condition of having that housing.

Many schools also do not charge rent even for phone or cable service to the houses in which faculty live on or off campus. The value of these additional benefits is significant, in many cases more than $2000-$3000 a year of income that is not treated as a taxable benefit. Schools that do not examine their policies carefully to ensure appropriate compliance are subjecting both the teachers and the school to a major risk.

Day care. Providing day care continues to grow as an option in our schools. If the program is for employee children only, regulatory hoops are usually less onerous than if the service is a commercial one offered to the general public. Most schools with this offering provide the space and overhead for programs that serve children from 6 weeks to 4 years of age. Tuition is charged directly to the staff but the costs are usually competitive and the convenience of having one’s child close by builds powerful employee loyalty.

Professional Development. Schools should plan to spend $1000 per teacher per year on professional development. The research and development money invested in teachers is the best money spent. Many schools now set staff development budgets based on $1500 per teacher.

Workload. While workload is not a “benefit”, it is important to consider the following: How does workload vary among teachers within the school itself? How does it compare to workload within the school’s competitive market and region? Addressing any workload-related issues can avoid feelings of inequity and further support teachers.

Teachers working in grades Pre-school through 4, teach, on average, 1,000 minutes to 2,000 minutes a week of class time, excluding lunch, recess, hall, and dining room duties. The minutes refer only to actual teaching time. The national average for Pre-K-4 teachers is about 1600 minutes a week. For middle school teachers nationwide the average number of minutes per week of class teaching time is 1200 with a range of 800-1600. For upper schools the comparable number is 900 with a range of 600-1300. This excludes extra curricular activities.

The realities of schools are that teachers teaching 3 classes a day feel overworked and pressed for time just as much as teachers teaching 6 classes a day. This author finds no sense in those teaching only three classes a day that this is a great arrangement. The less the workload, the more teachers become adjusted to it. Expectations rise from there.

Independent schools nationwide must keep current with the many changes and challenges in overall faculty compensation patterns. If they intend to find and keep quality faculty, schools must think creatively and proactively and demonstrate flexibility in both salary and benefits structure and delivery.

John Littleford
Senior Partner