Benefits Administration Outsourcing: Might It Be Right for You?

Employee benefits are a major cost for employers, recently accounting for 29.5% of the total compensation for workers in private industry.¹ It’s crucial that these benefits be administered correctly. Otherwise, organizations risk employee dissatisfaction, which could increase employee turnover. They also risk making costly compliance mistakes. If a company doesn’t correctly navigate the maze of regulations surrounding benefits administration, it could face steep penalties and fines.

For these reasons and more, many large and small businesses rely on benefits administration outsourcing providers. The right one will have the knowledge and experience to handle your benefits administration needs expertly and efficiently. Better yet, doing so they can save your company both money and time.

If you’re an employer or HR department professional, this article will help you decide if you should outsource your employee benefits administration. For those who are interested, it’ll also explore how to choose the best provider for your company’s needs.

What is benefits administration outsourcing?

Similar to other types of business administration outsourcing, benefits administration outsourcing is using an outside service to administer employee benefits. The provider is often a company that specializes in managing employee benefits and, optionally, other payroll functions for businesses. Sometimes a company that provides employee benefits, such as an insurance company, may also be available to administer them. Others may be professional employer organizations (PEOs), with whom businesses enter into a co-employment relationship.

Advantages of outsourcing benefits administration

Benefits outsourcing can help your company in several important ways, relieving your team of some or all of the administrative burden.

Cost savings

If you handle the benefits administration process in-house, you’ll need to assign employees to tend to all the required tasks. You may need to hire additional HR staff. If you use software to help with the administrative work, you’ll have the expenses of the software plus training costs. Using an outside dedicated team eliminates those costs and provides you with predictable expenses for these same administrative services. Many employers and HR professionals find this a more cost-effective solution.

Expertise

Companies that handle benefits administration acquire specialized and up-to-date knowledge that would be difficult, time-consuming, and expensive to develop in-house. You can rely on the expertise of a good provider.

Efficiency

Because the providers specialize in administering benefits, they have the trained personnel, procedures, and technology needed to operate most efficiently.

Compliance with state and federal regulations

Federal and state laws and regulations concerning benefits change often. A benefits administration provider keeps up with the current laws to ensure their clients remain in full compliance. This is important to avoid liability and consequences.

Time savings

Benefits outsourcing will save your company time. This is especially important to small business owners pressed to tend to the time-consuming tasks surrounding benefits processing. Instead, you can focus on the core functions of your business.

Predictability

Whether you’re a business owner or a member of an HR team, if you’re administering benefits yourself, you might have a fluctuating workload. For example, you may be busier than usual during health insurance open enrollment periods as workers pursue benefits enrollment or plan changes. When you outsource your benefits administration, someone else handles it, and you won’t experience these crunch times in benefits cycles.

Improved employee experience

When an outside company processes your benefits, they may offer several advantages for your employees. Depending on the company, these may include:

• Offering certain benefits that would be too complicated for you to administer and provide on your own. Furthermore, your ability to offer a better benefits package may play a key role in your employee retention strategy.
• Providing an online self-service portal where employees can make changes.
• Reducing employee paperwork.
• Providing a helpline for employee support pertaining to their benefits questions.

When is it time to outsource benefits administration?

Sometimes small businesses think they can handle benefits administration themselves, especially if they only have a few employees. If that’s you, watch for signs that it might be time to consider outsourcing. For example:

• Administering benefits is taking up too much of your time or your employees’ time. You want to free up that time to use it for other purposes.
• The cost of purchasing and running benefits administration software rivals or exceeds that of using an outside company.
• You’re risking liability because you struggle to keep up with compliance requirements amid a changing legal landscape.

What to look for in a benefits administration provider

It’s important to choose the right benefits administration provider for your needs while still controlling costs. Companies that get it right the first time can more easily establish a positive long-term relationship. They save the time, expense, and hassle of having to change providers later.

Here’s what to look for in a provider:

• Make a list of all the benefits administration functions that you would like a provider to handle. Make sure that the providers you’re considering can handle all the functions you need.
• Consider the performance standards you’ll require. For example, do you want the provider to pay claims within a specified number of days?
• Does the provider create a good experience for your employees, helping you to retain your staff and attract new talent?
• Will using this provider deliver the ROI, saving you money compared to the cost of doing it yourself?

Businesses currently administering benefits in-house might gain an advantage from a serious look at outsourcing the work. Many employers save time and money, free up employees to focus on core business goals, and gain peace of mind doing so.

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1 News release – Bureau of Labor Statistics – Employer Costs for Employee Compensation – December 2022