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Outsourced HR: Employee Benefits Administration

By Liz Sheffield -

Today’s competitive business environment requires that companies find better, more efficient ways to run frontline, as well as back-of-house, operations. “Do more with less” is a mantra that your supervisor may repeat on a weekly—if not daily—basis. But when you’re managing the Human Resources (HR) function of the business, how can you do more with less and still meet employee and business needs?

Before you jump ship, take a moment to consider the core skills of your team. (And, if you’re an HR “department of one,” look carefully at your own skills.) Determine if there might be a way to make the most of your HR budget by outsourcing some of the functions in which you and your HR team aren’t experts:

If you see potential opportunities for outsourcing benefits administration, you’re not alone. Many small, mid-size and even large businesses choose to outsource some part of benefits administration because they see the positive returns of cost savings, valuable expertise, and increased productivity.

Which types of benefits administration are most commonly outsourced for HR?

According to the Corporate Benefits Departments: Staffing and Operations Survey conducted by the International Foundation of Employee Benefit Plans (IFEBP), on average, companies report outsourcing 40% of their benefit functions, most commonly for:

Employee Assistance Programs (EAPs) 77%
Flexible Spending Accounts (FSAs) 69.4%
COBRA 63.6%
Retirement benefit payments 56.3%
Pharmacy benefits administration 52.5%

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Why consider outsourcing HR for employee benefits?

“An outsourcing increase is a positive thing for benefits departments,” said Julie Stich, Research Director at the IFEBP. “Benefits staff are working smarter and more efficiently by choosing the mix of outsourcing, co-sourcing and insourcing that’s right for them.”

Cost savings

Benefits administration costs money whether it’s managed in-house or by an external provider; however, when outsourced, the cost of the expertise is more affordable. Benefits enrollment happens once a year, and unless you’re a big organization or have a lot of new hires, it doesn’t make much sense to have an in-house benefits expert who is busy for a few months and then doesn’t have much to do for the remainder of the year. When outsourced, you can determine when and how you’ll need help, and pay accordingly.

If you’re an organization in which someone who isn’t an expert but has time on her schedule handles benefits administration, this is an excellent opportunity to evaluate the potential costs to the organization if a mistake should happen. Hiring an external resource to manage your benefits plan shifts the liability burden to the outsourcing company, and reduces your risk and financial exposure if any issues occur.

Valuable expertise

While you may have someone on the team who is willing to help administer benefits, without proper training and education, it may take that person twice as long to answer questions, make decisions, and keep the process moving. Their lack of knowledge also has the potential to negatively impact the employee experience as it relates to your plan, and may ultimately raise concerns about benefits options and management.

With multiple new technology solutions for HR on the scene, you can take advantage of integrations and syncs across several external benefits tools — Human Interest is an online 401(k) tool that syncs with Gusto payroll!

Outsourcing also makes the possibility of first-rate packages a reality, without requiring an in-house HR professional to spend hours of time exploring and discussing options with different carriers. With an outside administrator, it’s easier to streamline the process, reassure employees that your benefits are well managed, and ultimately provide a package that makes your company stand out.

Increased productivity

A benefits administration firm not only has access to experts, but they also have the systems and technology in place to make management easier for your team to oversee. Building a secure, online benefits platform to house confidential financial and health care data is next to impossible for most small businesses. With the option of outsourcing this work, it’s a security and financial headache that HR can avoid.

Online access to benefits isn’t only an advantage for the HR team; it’s also a huge win for employees. A benefits system saves employees time, provides them with access to relevant information, and demonstrates your commitment to meet their needs. And with the time your HR team saves by not handling the questions and minutiae of benefits administration, they’re able to focus on strategic HR activities and to respond to employees’ questions and concerns.

Of course, each organization needs to determine if outsourcing benefits makes sense given the company size, budget, and administration needs. Some questions to consider:

Which employee benefits functions shouldn’t be outsourced?

Chances are there’s an outsourcing option for almost any type of employee benefit your company might want to offer. However, two key duties that companies rarely outsource are benefit program strategy and design, as well as the communication and education they provide for employees around benefit options.

Even if you choose to outsource, don’t take an entirely hands-off approach. Benefits administration involves and impacts your employees, so you’ll want to monitor your administrator’s activities, especially in regards to any laws or compliance requirements (e.g., COBRA, ERISA, ADA, etc.).

What does it cost?

Outsourcing has the potential to be cost effective; each organization’s options (and potential savings) depend on the number of employees and types of services the company requires. Cost-effective outsourcing of benefits administration involves a thorough understanding of what you want to offer and the total in-house costs involved. This information will help you measure whether or not your organization would experience cost savings by using an outside vendor’s services.

Is outsourced benefits administration better for a specific type of company?

Large, medium, and small businesses can all find efficiencies and cost-savings through outsourcing. Regardless of size, organizations should keep in mind that there are many vendors to choose from, and to look for a provider that has experience working with similar sized businesses that have similar outsourcing needs. The Affordable Care Act (ACA) is driving many organizations to consider outsourcing options. Many vendors offer tracking and reporting tools that help monitor ACA compliance.

In general, smaller companies may experience faster implementations (due to size), and will experience more immediate cost savings as a result. Larger organizations may have additional set-up costs related to the complexity of the operation, but at the same time they may be in a better position to negotiate discounted pricing.

What should I look for in a benefits administration vendor?

Selecting a provider for benefits administration requires a thorough, diligent review of the services you need and an evaluation of vendors that provide those services. A successful outsourcing relationship involves not only the work involved, but mutual approval of service agreements, and administration details.

It’s important to consider everything involved (including the items below), as this will (hopefully) be a long-term relationship upon which your organization and employees will depend on:

When you’re charged with doing more with less, and are looking for a way to make changes in your plan that won’t negatively impact your team or employees, consider the option of using an outside firm to manage your benefits. Outsourcing allows you to continue offering benefits as an essential part of your compensation package, while removing the labor-intensive elements of benefits administration so that you and your HR team can apply your talents to company-specific HR needs.

Related article: The Most Requested Employee Benefits at Small Businesses

Image credit: Flickr

Avatar Liz Sheffield

Liz Sheffield has more than a decade of experience working in HR. Her areas of expertise are in training and development, leadership development, ethics, and compliance.

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