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When it comes to funding employee benefits, it seems the red ink never ends. The costs only begin with the monthly premiums required for common programs such as health insurance and workers compensation. Adding to the financial burden are a cascade of support tasks like paperwork, selecting vendors, processing claims, staying up-to-date with federal and state regulations, and answering employee inquiries. It can rack up costly working hours that take a heavy toll on your 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 Provo, Utah-based HR Consulting, which provides benefits software and training. "Employers are saying, 'We are not experts in benefits administration. Let's pay someone who has that expertise.'"
Cut Costs
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-type plan involves an initial payment of $300 to $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 HR duties to people who can perform them more efficiently. "If you have over 20 employees, it is generally cheaper to outsource your benefits administration," Thurston notes. If you have fewer than 20 employees on the 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 trained and which give you the most bang for the salary buck.
"Outsourcing allows your people to focus on their core competencies," points out Thurston. Particularly attractive for many employers is the legal expertise. Generally speaking, the expertise offered by specialist organizations is increasingly important the smaller the employer, he says. "Outsourcing is particularly useful for the employer who lacks a full-time HR individual."
Improve Morale
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 Minneapolis-based Watson Wyatt, a consulting firm that helps businesses design outsourcing strategies.
Perhaps one of the most commonly outsourced tasks is the processing of employee inquiries. Providing the right answers can be as difficult as it is necessary. "One big question is always 'Who talks to the employees?'" Tripp says. "Outsourcing call center duties can really free up the time of an employer's HR people."
Select Tasks
When deciding whether or not to outsource, 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 and free you from having to buy and learn new software or hardware. Others specialize in specific areas. Still others just sell software to help you.
Some firms provide a Web site where your employees can perform a variety of tasks such as updating their personal records, changing benefits plans and filling out enrollment forms. One such site is www.mypaperlessoffice.com.
Ask your current insurance agent or benefits provider if they offer any level of outsourcing. Then review the offerings of the many vendors active in the benefits field.
Choose Carefully
Picking the right outsourcing service is critical. Cost is one consideration, but much more important is a history of compliance with the applicable federal and state laws. Cafeteria plans, in particular, must be administered in accordance with IRS regulations.
Be clear about what you are buying. "You really need to understand the service delivery model," Tripp says. "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."
One more thing: Does the vendor have 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 Sarah Fakan, director of marketing and sales at www.myCafeteriaPlan.com, a third-party benefits provider.
It can be a challenge to find the sweet spot when it comes to the cost of outsourcing, the savings in administrative labor, the redeployment of expertise within your business, and the improvement in employee morale. But the result can make the effort worthwhile, Thurston says: "Outsourcing can be useful whether you employ two people or 200."