Benefits and Compensation, HR Management & Compliance, Technology

Q&A: How Can HR Start Outsourcing?

How do you decide if you should outsource your benefits administration? If you do decide to go that direction, how do you get started?

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In part 1 of this article, we discussed the value of outsourcing certain HR functions with Jon Shanahan, CEO of Businessolver. Today, we’ll explore how HR teams can decide if they should outsource and, if so, how they can get started.

HR Daily Advisor: How can an organization decide if outsourcing is the right move? And if so, how can it get started?

Jon Shanahan: Outsourcing benefits administration works best for organizations with more than 500 employees or multiple benefits offerings. If you’re still considering bringing your benefits administration in-house, ask yourself these four questions to avoid any surprises:

  • What is the projected total cost of ownership throughout the contract? Insourcing appears attractive because of the initial price tag, especially if your existing HCM (Human Capital Management) or ERP (Enterprise Resource Planning) offers benefits administration modules at little or no cost, but looks can be deceiving. Most modules are basic and will require hiring additional staff, borrowing resources from IT and legal, and paying HR tech consultants to customize the technology. Before you decide to insource, review the long-term impact of cutting those costs, and the overall total cost of an outsourcing model will be much clearer. For example, find out what a consultant would charge to get your platform ready for the first day of annual enrollment, and consider any midyear changes that may become necessary, such as making a tweak to a life insurance plan or responding to new file feed requirements from your vendors. Unless you have someone on staff with the technical expertise, you’ll likely have to pay a specialist.
  • Would an insourced platform support my future benefits strategy? As healthcare costs continue to increase and utilization trends emerge, the biggest wins you can achieve are through the plan design itself. The last thing you want is a platform that won’t support your future cost-savings efforts because it lacks flexibility or would be too costly to annually reconfigure. Some changes, like introducing a high-deductible health plan, may already be on your radar, but remember to consider other possible changes, as well. To stay competitive, will you need to add more voluntary benefits like identity theft protection, pet insurance, student loan consolidation, or long-term care insurance? And what would happen if you were to change carriers altogether, as in the case of life insurance or long-term disability benefits? Generally speaking, outsourced solutions can grow over time, especially those that are built on configurable SaaS technology as opposed to customized solutions that require special coding to accommodate changes.
  • What compliance issues should I consider? When insourcing, organizations take on additional fiduciary risk with regard to requirements associated with the Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA), and other regulations. And, organizations will need compliance experts on staff due to regulatory change at the city, state, and federal levels. However, with the right outsourced benefits administration partner, organizations can be assured that they are covered and have a trusted resource to share updates and take necessary action.

HR Daily Advisor: How does HR sell something like this that favors long-term return on investment (ROI) over immediate ROI?

Jon Shanahan: A CHRO must explain the total cost of ownership beyond the initial investment and the potential help with risk mitigation surrounding regulatory compliance to get buy-in for an outsourced solution. However, because decision-makers like chief financial officers (CFOs) usually are unaware of the work HR does to achieve an organization’s goals, education about the overall organizational impact—not just using spreadsheets—is key. CHROs may have to encourage these decision-makers to think beyond the initial outsourcing cost by explaining the downstream impacts on the team, retention rates, and employee engagement.

Having a frank discussion with senior leaders—using the questions above and below—will illuminate how the right benefits administration partner can lead to better employee retention and engagement, increased competitive hiring, and maximized investment in benefits.

HR Daily Advisor: What are some of the cons of outsourced HR benefits administration, and how can they be avoided?

Jon Shanahan: Unless you have fewer than 500 employees and very few benefits to administer, an outsourced solution will almost always be better than insourcing using a basic HCM/ERP benefits module or a homegrown solution. That said, it is possible to choose the wrong partner for outsourcing your benefits administration.

To avoid this, it’s important to do your research on multiple vendors and the technology and services they provide. Ask for a live demo of potential solutions to gain a better understanding of their offerings, and review their references and social media, just like you would a potential employee. Finally, provide a handful of potential vendors with a thorough RFP to be able to really evaluate your options and make a decision about a long-term partnership versus a service transaction.

Another issue many organizations have with outsourcing is their preference to own employee service centers versus the benefits administration vendor. In this case, a co-sourcing model could be set up between the company and benefits administration partner. Co-sourcing is a combination of outsourcing and insourcing in which there is a division of specific people or process- or technology-related tasks. Employee service center support is often what is kept and serviced internally in many co-sourcing models. Assessments would need to be conducted with your organization’s current or potential vendor and by your internal HCM/ERP system to determine if that type of technology integration could be handled efficiently.

Jon Shanahan is the President and CEO of Businessolver, a benefits administration solution.