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Dave Foxall Outsourcing Benefits Administration: 3 Key Selection Factors

3.5 stars Average rating: 3.5 (from 58 votes)
 By Micah Fairchild

Benefits Administration Outsourcing: Finding the Right Provider Fit

In the survey titled, New Horizons - No Boundaries, Towers Watson found that 21% of respondents have outsourced HR functions previously conducted in-house within the last 18 months, and 17% will be outsourcing further functions during the next two years. Given the current rise in benefits administration outsourcing (BAO), as well as the ever-increasing complexity of ongoing health care reforms, it’s no surprise that much of these reported increases are going towards more business for benefits providers.

And while the arguments for BAO are compelling, in truth the advantages of outsourcing benefits administration aren’t all that dissimilar from those of any outsourced HR function. Namely, with BAO, in-house HR staff can refocus on high-value, strategic activities; employees can have access to information via integrated and convenient technology tools; providers can interact more effectively with participants to ensure optimal service delivery; and the total cost of ownership (TCO) of administering programs can be significantly reduced.

Here’s the thing though…in order to leverage these advantages fully, an organization must select the best outsourcing service provider for its specific business needs. And as an ADP survey report (To Manage Benefits Administration Internally or Outsource? That IS the Question) noted, this can be a complex process in and of itself that encompasses multiple selection criteria such as:

  • Cost of services
  • Benefits expertise
  • Service-level capability
  • Solution capabilities
  • Compliance capability
  • Ease-of-use of solutions
  • Ability to provide an integrated service offering
  • Consulting capability
  • Client testimonials/references

While all of these criteria are certainly important, in the selection process for a benefits administration outsourcing partner, certain factors are of particular relevance. Here’s our list of the top 3.

Benefits Outsourcing Selection Factor #1: Compliance

Hands down, this issue is the key current driver for outsourcing benefits administration. As the compliance burden on employers grows heavier and the opportunities for mistakes resulting in fines and penalties grow more numerous, businesses are looking to external expertise to keep them on the right side of the emerging legislation. Unsurprisingly, the abovementioned ADP survey found that regardless of organizational size, “the key reason employers outsource benefits administration is to help ensure compliance”. And in fact, even before the latest complexities came out about from updates to health care reform in the form of the Patient Protection and Affordable Care Act (PPACA), in a white paper from ExcellerateHRO (Benefits Administration Outsourcing) noted that, “An effective compliance approach reduces risks, protects reputations and enhances shareholder value”—all things that when put together make for a tall order that’s difficult to fill. Indeed, already employers are being expected to handle changes to W-2 reporting; fine detail changes to flexible benefits restrictions; issue Medicare Part D creditable coverage / non-creditable coverage notices; and keep track of the eligibility threshold of 130 hours per month for part-time workers. It’s no wonder then that companies looking to outsource are demanding up-to-date expertise in this and other complex compliance areas such as COBRA, 401(K) retirement plans, and FSA administration. As such, finding the right regulatory partner for benefits is critical.

Benefits Outsourcing Selection Factor #2: Functionality

Maximizing the deployment of employee self-service (ESS) transactions is essential to realizing the full cost savings inherent in outsourcing benefits administration; especially in the context of providing a better quality, more efficient service to employees. So much so in fact that a PricewaterhousCoopers (PwC) survey, The Hidden Reality of Payroll & HR Administration Costs, found that, “this strategy results in a 50% lower TCO of workforce administration for large organizations compared with peers managing the function without these features”. However, not only can ESS functionality cover access to personal data, changes to benefit plans, and the automation of exercises such as annual enrollment; but the same employee portal can be used to disseminate health awareness information—thereby actively contributing to a healthier workforce, reducing absences due to sickness, and decreasing the frequency of claims on health plans (which in turn can help to keep longer term costs down). As ExcellerateHRO points out, such functions, “give participants the ability to understand their risks, modify their behavior to improve their health and make decisions about the healthcare plans that are best for them and their families”. And when you add in the fact that these ESS capabilities can include tools such as online health assessments and links to information about relevant wellness programs and prevention opportunities, it’s not hard to figure out the incredible impact that this factor can have with the right benefits administration outsourcing provider.

Benefits Outsourcing Selection Factor #3: Cost

Among what we’ve already mentioned, the above ADP survey (To Manage Benefits Administration Internally or Outsource? That IS the Question) found that when it came to selecting a provider more than 70% of organizations placed cost at the top of their list of factors for outsourcing the benefits function. And it’s certainly not difficult to understand why. After all, PwC’s recent survey (that looked at the surface and hidden costs of benefits administration alongside payroll, workforce administration and time & attendance) found that organizations that outsourced made an average up-front saving of 18% compared to those administering benefits in-house. But potential savings can be even further delineated if captured properly. For instance, a comprehensive (and effectively leveraged) ESS strategy can bring further savings on hidden costs such as employee and HR staffing time—a clear indication that if managed properly (and utilized through the right BAO partner), a outsourced benefits function can pay dividends long-term.

Benefits Outsourcing Provider Selection – Final Thoughts

The advantages of benefits administration outsourcing have long-been touted as attractive by the companies that offer that service. In fact, as ExcellerateHRO observes, “Outsourcing vendors [can] offer [things like] economies of scale and a concentration of expertise. And they [are] continually investing in the latest technologies and the most talented experts”. That said, it’s our opinion that the above issues of costs, functionality, and compliance assistance are at the top of the list for selecting the right partner to be able to even benefit from what ExcellerateHRO is describing. As such, while the usual vendor/product selection issues apply to benefits outsourcing (e.g. functionality, user-friendliness, stability, data security, etc.), keep in mind what you’re really after—the right partner to handle a critical part of your business for you. End

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With BAO, in-house HR staff can refocus on high-value, strategic activities; employees can have access to information via integrated and convenient technology tools; providers can interact more effectively with participants to ensure optimal service delivery; and the total cost of ownership (TCO) of administering programs can be significantly reduced.

 

 

 

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