Consequences of Outdated Employee Benefits Systems

Technology is making remarkable strides across the employee benefits landscape. A 2019-2020 survey found that the vast majority of organizations are utilizing a benefits application in some shape or form. Benefits applications are often integrated into cloud-based human capital management (HCM) technology, to streamline the HR, benefits, and payroll functions. But not all employers have embraced integration or even automation. Many small businesses, in particular, remain resistant.

According to Unum Group’s Small Business Benefit Trends report for 2021, “Many small HR teams may be working harder than they have to, due to outdated processes and systems.” These teams depend largely on manual processes instead of digitized HR systems — causing administrative burnout and financial waste. Per the report, “Small [HR] teams are stretched thin,” and over half of surveyed employers have only 1 person managing their HR function.

Benefits administration is regarded as the most complex HR process. Therefore, up-to-date digitized solutions are needed — not outdated systems, which do more harm than good.

Let’s look at how outdated systems can impair some of the most critical aspects of benefits administration.

1. Poor impression on new hires during onboarding

Onboarding lets you acclimate new hires to your company, from day 1. It’s the perfect mechanism for educating new hires about your benefits program and for new hires to select their benefits packages.

The goal is to make benefits education and enrollment straightforward and engaging for your new hires. But if these tasks are done manually, your new hires could become confused and overwhelmed by paperwork. Or, if your technology is not user-friendly, your new hires might think you don’t care about the employee experience. Either way, you risk new hires becoming frustrated, and even quitting.

Although new hires quit for different reasons, a strong onboarding process that addresses new-hire benefit needs can help you make a favorable impression on new employees.

The Human Capital Institute says that up to 20% of new hires quit within their first 45 days on the job, causing substantial loss for the employer — who must then spend time and money finding replacements. Although new hires quit for different reasons, a strong onboarding process that addresses new-hire benefit needs can help you make a favorable impression on new employees.

2. Absence of employee self-service burdens HR

Once employees are settled into their roles, they need ongoing benefits support — such as when requesting time off from work, or when the company adds new benefits or makes changes to existing ones.

Without proper tools to self-manage their benefits, employees will lean heavily on HR. For example, they will contact HR for answers to basic questions such as paid time off balances, and for help with routine tasks such as changing their 401(k) elections or health insurance plan. The HR team must then take time out of their busy schedules to respond to these inquiries — which employees could have resolved on their own if they had self-service tools at their disposal.

These archaic processes do not inspire employee autonomy, nor do they empower employees to have more control over their benefits. Instead, they bog down HR with unnecessary transactional tasks, prevent HR from pursuing more strategic objectives (such as benefits planning), and stymie employee independence.

3. Open enrollment is a nightmare

During open enrollment, employees must review their benefit choices and options then make the necessary adjustments. This is a challenging feat for many employees, especially those who struggle to understand their benefit options. Consequently, employees often dread open enrollment, or view it as an annoyance.

On the HR side, open enrollment obligations run the gamut, including:

• Reflecting on what happened during the last open enrollment season, and gleaning lessons learned
• Reviewing plan documents
• Determining employees’ current benefit needs
• Coordinating with benefit providers, such as brokers and third party administrator
• Establishing new benefit goals
• Deciding which benefit changes to make
• Choosing the appropriate communication methods for open enrollment
• Sending open enrollment notifications and reminders to employees
• Distributing open enrollment materials
• Responding to employees’ questions and concerns
• Helping employees to make the most suitable benefits choices

Performing these tasks via paper-laden systems or outdated technology is uneconomical and exhausting. Such systems are also likely to discourage employees from participating in open enrollment, or from being actively engaged in the process. For these reasons, employers should utilize an advanced HCM platform that delivers a much smoother path to successful open enrollment.

Performing these tasks via paper-laden systems or outdated technology is uneconomical and exhausting. Such systems are also likely to discourage employees from participating in open enrollment, or from being actively engaged in the process.

4. Loss of potential savings for benefits enrollment

Typically, employees enroll in benefits during onboarding or open enrollment.

A 2019 report by Ernst & Young revealed the cost per data entry for the following benefits enrollments tasks:

•  Obtaining or distributing plan documents and summaries — $14.16
•  Providing information about plan changes — $18.96
•  Providing information to compare plans — $9.76
•  Processing and confirming plan changes — $2.40
•  Confirming dependent eligibility for coverage — $2.30

Remember, that’s cost per data entry. With repetitive data entry, these costs can add up to a significant amount.

In addition, the report examines the various HR-related costs to employers who do not use fully-automated self-service HCM technology. It found that “The area with the most potential cost savings is benefits enrollment, particularly around tasks related to providing plan information to employees, whether to inform them about plan changes or providing data to facilitate comparisons between plans.”

5. Fragmented administration

Although HR, benefits, and payroll are separate branches of the organizational tree, they share many overlapping activities, which include processing the following employee information:

• Name, address, and Social Security Number
• Compensation, such as salary or hourly rate
• Time and attendance
• Mandatory and voluntary benefits
• Paycheck deductions
• Adjustments to pay and benefits

This information must be administered from HR, benefits, and payroll standpoints. But if all 3 functions are administered manually or via disparate technologies, the result is a fragmented and complicated process.

Ramifications of fragmented administration:

• Increased data entry, as information must be entered separately into each system; for example, into both the HR/benefits system and the payroll system
• Administrative errors, many of which are caused by data entry mistakes
• Inaccurate records, such as paystubs, Form W-2s, employment tax filings, and financial statements
• Wasted productivity, as too much time is spent maintaining separate systems
• Dissatisfaction among the HR/benefits and payroll staff (who are forced to work with the outdated systems)
• Breakdown in communication between the HR, benefits, and payroll functions

These risks can be mitigated with integrated HCM technology.

6. Compliance is harder to reach

Regulatory compliance is top priority for benefits administration. But it can be tough to achieve due to the vast scope of federal and state benefits laws, plus the fact that not all benefits are subject to the same rules and regulations.

Commonly, benefits administration is governed by:

• Employee Retirement Income Security Act (ERISA)
• Consolidated Omnibus Budget Reconciliation Act (COBRA)
• Affordable Care Act (ACA)
• Health Insurance Portability and Accountability Act (HIPAA)
• Family and Medical Leave Act (FMLA)
• State paid and unpaid leave laws
• Equal Employment Opportunity Commission (EEOC) rules
• Internal Revenue Code
• Department of Labor standards
• Workers’ compensation laws
• Unemployment insurance laws

These rules and regulations stipulate the conditions under which benefits should be offered and what employers must do to remain compliant — such as issuing benefit notices to employees, making payroll deductions, and filing benefits reports with the government.

Noncompliance is a slippery slope, which can cause:

• Employee complaints and lawsuits
• Audits/investigations from the administering agency
• Monetary fines, legal fees, and criminal penalties

Adopting best practices — such as processes for monitoring benefits compliance — is vital to preventing noncompliance. But with outdated systems, maintaining best practices can be elusive.

When working with manual systems, it’s easy for the human eye to overlook critical information, such as compliance updates from the government.

For example, when working with manual systems, it’s easy for the human eye to overlook critical information, such as compliance updates from the government. Moreover, you must work “from the ground up” when performing compliance tasks manually.

Similarly, disparate technologies are barriers to compliance due to their fragmentation and propensity for errors.

This is in stark contrast to integrated HCM technology, which does a lot of the legwork and helps to keep the benefits program in compliance.

7. Issues with data integrity

Access to reliable benefits data is priceless, because it allows you to:

• Establish your benefits budget, based on what employees want and need versus what you can afford
• Benchmark your benefits with what your competitors are offering
• Plan and design benefits packages for your specific workforce
• Attract and retain high-performing employees
• Survey employees to see how they feel about their benefits
• Gauge program utilization and engagement levels
• Understand the impact of your benefit offerings on employee behavior; for example, which ones motivate or demotivate job performance
• Monitor the success of your benefits program
• Evaluate your benefits partnerships with external providers
• Conduct internal audits of your benefits transactions
• Root out inefficiencies in your benefits processes, procedures, and systems
• Examine the effects of your benefits program on related functions like HR and payroll

It takes loads of human effort to tackle these objectives manually, and even then, you probably won’t have all the data you need to confidently make decisions. Although disparate technologies are an improvement over full manual processes, they restrict data-sharing, because the information is fragmented rather than synchronized across related functions. Due to the amount of labor involved with these systems, data quality can be easily compromised, potentially jeopardizing decision-making.

Also, because outdated systems are so labor-intensive, there’s a good chance you’ll skip essential activities (such as competitive benchmarking), just to save time.

8.  Sluggish communication with benefit providers

Most employers work with benefits providers, such as administrators, brokers, carriers, recordkeepers, and technology vendors. On the carrier front, employers must transmit employee information to the carrier that provides the benefit.

A manual process typically happens like this:

• The employee fills out their benefits enrollment form
• The employee submits the enrollment form to HR
• HR enters the information into each carrier’s system
• Each carrier processes the employee’s information and issues the necessary materials to the employee (such as insurance packets)
• Rinse and repeat whenever the employee makes certain changes to their benefits

This grinding process can be exponentially accelerated via HCM technology that enables Electronic Data Interchange (EDI) with carriers or Application Programming Interface (API).

9. Scattered recordkeeping

Benefits administration includes collecting, organizing, and storing (often sensitive) employee information. But if the system is outdated, paperwork can get mishandled or lost. Antiquated systems drown the HR team in clutter, and make it difficult to locate relevant information — which is a serious problem if your benefits plan is being audited by the Internal Revenue Service, Department of Labor, or another government agency.

So, it’s important to adopt a modern approach to benefits recordkeeping — one that automates records management and document tracking.