Small business employee benefits are important when it comes to retaining good workers. But finding the right way to start, adjust or maintain the benefits programs can be challenging and costly. One very common solution is to outsource some or all of the employee benefits.
The Disability Management Employer Coalition notes in its 2017 DMEC Employer Leave Management Survey that smaller employers typically outsource benefits programs like worker's compensation, employee assistance programs, medical insurance and other wellness benefits entirely to one vendor, though some spread them out over several vendors. Plenty of other benefits can be outsourced as well, including flexible spending accounts (FSAs), various types of insurance, retirement plans and investment plans.
Why Outsource Employee Benefits?
Small businesses find many reasons to outsource benefits, including:
- Expertise: A top reason for benefits outsourcing is to access expertise, especially around legal and compliance issues. Doing so can also help a small business reduce its liability risks.
- Decreased cost: Hiring more employees is expensive, especially if those employees have specialized backgrounds. Outsourcing some or all employee-benefits administration can help you avoid hiring anyone to administer them in-house. Outsourcing can also help decrease the hours needed for the employee currently handling benefits, as your employees can get their benefits information and make any changes directly through the benefits company.
- Focus: Staff should be free to focus on what's most important to the company, which could be anything from recruiting to running internal programs. With a benefits solution, a small business can outsource what might be done better and more economically outside the company, freeing up staff to work on priority assignments.
- Privacy: At a small company, employees can place substantial value on maintaining the privacy of sensitive information. They may not want colleagues they see daily knowing about their investments or the questions they ask about specific health care needs. Working with an outside company can provide employees with a personal buffer, making it easier to handle some benefits-related arrangements.
How Benefits Outsourcing Works
A company doesn't have to outsource all the benefits it offers, and it may still need staff in-house to conduct research and maintain relationships with the benefits company. Vendors providing benefits offer different models for their services. Some take over all benefits administration for a fee assessed to the employer. This can involve full benefits administration, or just handling customer service and providing a call center for questions and support.
Another model, known as co-sourcing, embeds a specialized benefits person in the small company (though that person remains employed by the vendor). Alternatively, the vendor might train the small business's staff and provide them with technology and support, eventually leaving the business to run the program internally.
In another arrangement, the vendor provides benefits to employees at no cost to employers. Employees might gain access to optional life insurance, disability insurance, critical illness insurance and investment funds, for example, without the employer contributing to the premiums or administrative costs.
Outsourced benefits programs can also be seamless for employees. Some programs allow direct paycheck deductions, meaning there's no need to send individual payments or worry about those payments arriving late.
Choosing a Benefits Vendor
For direct insight into a business owner's perspective on benefits companies that handle outsourcing, you can ask other small business owners which companies they use, what types of benefits they outsource, and what advantages they receive from doing so.
Ask how the companies structure their benefits and how they pay the administrative fees. Ease of implementation is another aspect that can be useful in teasing out differences between vendors — an aspect you may not glean from the vendors' websites. Your current financial institutions and other vendors may also have recommendations or offer benefits outsourcing themselves.
When outsourcing benefits, it can be helpful to determine your company's goals, including the desired benefits. That will help with next steps, which might involve evaluating the following:
- Offerings: What services and products does the benefits company offer, and do these align with your employees' needs? It's possible to use several benefits companies for outsourcing, but it might be easier for employees to have one contact who can take care of all benefits not administered in-house. Some vendors offer a benefits package, which might be standardized or customized to each business.
- Pricing: Pricing strategies differ by company, and may include service fees, administrative fees, account management fees or fees to conduct seminars. Some benefits programs can be had at no cost to employers, allowing a small business to offer more to employees without a financial impact. No matter who pays, though, the benefits and administrative pricing should provide value — otherwise they may go unused.
- Customer support: A reputation for excellent customer service goes far. Some companies provide employee education on specific benefits, either in person or through a webinar. If that's important to you, find out what kind of educational support each company can provide and what it costs. Vendors also often have phone or chat lines available 24/7 so employees can reach out at a time convenient for them.
- Technology: Does the company offer a website or app so employees can easily file claims or make deposits? Companies specializing in these benefits often have digital platforms through which users can access information and make changes. Ease of use can have a significant impact on employee satisfaction with your benefits program.
Whatever you ultimately decide, it's worth looking into whether outsourcing employee benefits is a good option for you. You may want to compare the cost of the services offered by a benefits company to the time that would be spent by one or more staff members working on the same tasks. You can also consider outsourcing perks like legal protection, additional expertise and the ability to scale up.
Outsourcing benefits can help you increase your company's offerings without spending much more than you would on an internal solution. And knowing that compliance issues are covered by experts can help you focus on what you do best — running your small business.