Employee Benefits: Outsourced or In-House?
More companies are choosing to hire third-party providers to handle their employee benefits administration. What are the pros and cons?
The working hours required for all these duties can take a heavy toll on the bottom line. No wonder many employers have someone else negotiate the administrative maze. "There has been a big move in the last decade to outsource benefits," says Rob J. Thurston, president of HR Consulting Group, a Provo, Utah, based organization that provides benefits software and training. "Employers are saying, `We are not experts in benefits administration. Let's pay someone who has that expertise."
Costs and Morale
Maybe outsourcing sounds attractive - but how much does it cost? Services can range from $4 to $12 per employee per month, depending on the complexity of what you need. Setting up a typical cafeteria plan averages between $300 and $400 for a small group, with a monthly fee that commonly comes to $5 per month per participant.
Despite the cost, many employers actually save money by assigning human resources duties to people who can perform them more efficiently. "If you have over 20 employees it is generally cheaper to outsource your benefits administration," notes Thurston.
What if you have a small number of employees on your payroll? You may find it cheaper to do your HR tasks in house. Even then, though, you may decide to outsource the labor-intensive operations to free up your staff to perform those duties for which they are most trained and that give you the most bang for the salary buck. Particularly attractive for many employers is the expertise third parties can bring to understanding legal requirements. Generally speaking, the expertise offered by specialist organizations is increasingly important for the smaller employer, according to Thurston. "Outsourcing is particularly useful for the employer that lacks a full-time HR individual," he says.
Consider, too, the impact a dedicated organization can play in workplace morale. "Outsourcing can improve the quality of the service your business provides your employees," says Cathy Tripp, national leader for consumerism at Watson Wyatt, a Minneapolis-based consulting firm that helps businesses design outsourcing strategies. Indeed, perhaps one of the most commonly outsourced tasks is the processing of employee inquiries. Benefits are complicated and providing the right questions can be as difficult as it is necessary. "One big question is always, `Who talks to the employees?'" says Tripp. "Outsourcing call center duties can really free up the time of an employer's HR people."
Crunching and Choosing
When deciding whether or not to outsource, there are a number of factors to consider:
• Crunch the numbers. Start by analyzing the number of hours your staff currently invests in the benefits area and the impact that freeing up some of those hours can have on improved business operations. Bear in mind that outsourcing is not an all-or-nothing proposition. Some vendors will take on all of your outsourcing needs. Others specialize in specific areas or just sell software that helps you solve the benefits puzzle. And some outsourcing firms provide a website where your employees can perform a variety of tasks, including updating their personal records, changing benefits plans, and filling out enrollment forms. Ask your current insurance agent or benefits provider if they offer any services of this type.
• Follow the law. Even more important than cost is finding a firm that has a history of compliance with the applicable federal and state laws. Cafeteria plans, in particular, must be administered in accordance with IRS regulations.
• Read the fine print. Be sure you are clear about what you are buying. "You really need to understand the service delivery model," says Tripp. "The devil is in the details. Be sure you are clear on what the outsourcing firm will do versus what your own staff will still need to do."
• Check references. "Make sure the firm has excellent service - not just a pretty web site," says Tripp. You can assess quality by checking references. Ask current and former clients how quickly the service responds to questions and problems. "You want someone who will be there when you call," says Sarah Fakan, director of marketing and sales at MyCafeteriaPlan.com. "You don't want to be confronted with a phone maze whenever you have an issue." Also, be sure the company has a history of working well with employers of your size. "We get a lot of clients because they find when they work through the larger carriers, they don't get the `small-town' feel to the service," says Fakan.
It can be a challenge to decide whether to outsource benefits or keep them in-house, taking into account the costs, savings in administrative labor, redeployment of expertise within your business, and the improvement in employee morale. But the resulting success - as measured by both your bottom line and your employees' satisfaction - can make the effort worthwhile.
GE Vernova Expands Schenectady, New York, Operations
Southern Rock Energy Partners Plans Cushing, Oklahoma, Crude Oil Refinery
ForwardEdge ASIC Establishes St. Paul, Minnesota, Operations
Spain-Based Cosentino Group Plans Jacksonville, Florida, Manufacturing Plant
Michelin Expands Junction City, Kansas, Operations
Italy-Based Alpitronic Americas Plans Charlotte, North Carolina, U.S. Headquarters-Operations
37th Annual Corporate Survey: Economic Pressures Exerting Greatest Effect on Decision-Makers
Is a Flurry of Fads Shaping Economic Development Policy?
Nearshoring — North America’s Next Factory
19th Annual Consultants Survey: Clients Challenged by Tight Labor Market, Energy Availability
First Person: Labor Crunch in the Construction Industry
Front Line: Water Supply Increasingly Affecting Location Decisions
Manufacturing and Distribution Trends Impact the Value of Credits and Incentives