Intensifying Competition for Talent Causes Employers to Turn to Outsourcing for Benefits Programs | Article

workforceSalary.com’s 2005/2006 Employee Satisfaction and Retention Survey found that 65 percent of the respondents plan to look for a new job in the next three months, and that the number of employees who described themselves as “very likely” to leave their current job increased more than 50 percent in 2005, compared to the 2004 survey findings. Many employers are at risk of losing their most valuable and productive employees.

The annual MetLife Employee Benefits Trend Study released in January 2006 demonstrates a correlation between job satisfaction, benefits satisfaction, and employee loyalty. Moreover, this study found that recruiting and retention emerged as the top concerns for employers in 2006. The 2005-06 study reveals that 22 percent of all employees changed jobs over the past 18 months and 74 percent of businesses expect competition for talent to escalate over the next 18 months.

Employers are now charged with raising the bar in human capital management in terms of innovation, customer service, and results. As Scott Peterson, a Global Business leader in Hewitt Associates’ Benefits Outsourcing practice, points out, employers that utilize outsourcing have a significant competitive advantage in this area.

“As benefits get more complicated, companies find it increasingly difficult to invest in optimal technology and people expertise to have the necessary capabilities internally,” states Peterson.

At a minimum, outsourcing the benefits process clearly helps employees develop a better understanding and appreciation for the benefits employers offer them. Peterson points out this is an advantage for companies in the sense that it creates more recognized value of those programs.

Dano Bartolai, a Principal at Affiliated Computer Services (ACS), adds that “outsourcing enables the people in HR and benefits retained after outsourcing to focus on design and strategy, as opposed to tactical, transactional work that occupied some or all of their time before. It also equates to a more strategic benefits package that is aligned with what the corporation is trying to accomplish, such as acquiring talent.”

All of these objectives were achieved by Post Properties, one of the largest developers and operators of upscale multifamily communities in the US, when it outsourced the company’s benefits programs.

Benefiting at Post Properties

Linda Ricklef, Vice President of HR at Post Properties, says the company found through surveys that its employees feel that their benefits are “as important or more important than their compensation. They have said that is often what keeps them here.”

Before outsourcing to service provider Employease, Post Properties had only a very basic benefits package. Since outsourcing, the company has been able to add other benefits, including a package of voluntary benefits such as long-term care, critical care, life insurance, and auto insurance. Outsourcing improved the processes so much that the company was also able to launch an employee discount program and a new employee relationship function, which dramatically decreased some legal expenses.

“We were not able to provide those kinds of benefits before,” Ricklef remarks. “Frankly, we couldn’t manage it at that time because we were so bogged down. We were literally drowning in paper, barely able to process any data, had no data integrity, and were providing very poor customer service. We realized we had to transition to an outsourced solution to eliminate the paperwork and get a Web-based solution that would include some self-service capabilities for our employees.”

With the first benefits enrollment using the Employease solution for self-service, Post Properties anticipated 35 percent online enrollment and was concerned about its 15 percent Spanish-speaking population. “But it was a huge home run for us, and the response was phenomenal,” says Ricklef. They achieved 75 percent employee participation.

“We have really retooled what we do, now that we’re outsourcing,” observes Ricklef. “More and more companies are dropping benefits programs. But at Post Properties, we’re interested in retaining employees; and we have chosen to invest in them by continuing to offer a broad benefit package.”

Jeff Beinke, Vice President of Product Strategy and Development at Employease, says Post Properties’ scenario is not unlike other companies that turn to outsourcing. “They are very burdened with administrative work. They’re dealing with paper enrollments and antiquated systems that can’t handle the information or the plans they have.”

In addition, he points out that most in-house technologies that have been in place for a while don’t have connectivity between the application and the employer’s service providers and benefits carriers. So even if an employee makes enrollment changes online, the HR department has to print a report and send it to the medical carrier, who then must key it into its eligibility system or enrollment system.

Ricklef at Post Properties mentions other improvements. “We have to reconcile all the invoices from all of our vendors for all the various types of benefits. Before outsourcing, we hoped that what we were paying was correct, but we were never certain. We’ve been able to save money because we can very quickly identify what is incorrect on the invoice. Also, our staff is smaller than it was because we can do so much more with fewer people; so that’s another source of savings.”

Now the process takes less than 10 minutes through Employease. The technology extracts that information on a nightly basis and sends it automatically to all the different benefits vendors’ enrollment and eligibility systems. Whenever a piece of paper changes hands, the possibility for errors is high; an automated process lowers that potential risk dramatically.

In addition, the cost of maintaining and upgrading in-house legacy ERP technologies is high. By outsourcing, Post Properties was able to eliminate its mainframe system–and the need for expensive IT people to maintain and upgrade it continually.

Increasing the Outsourced Benefits ROI

Should an employer outsource multiple HR processes to the outsourcing supplier of benefits administration? Bartolai at ACS says this strategy will result in a broader base of cost-savings opportunities. “The net is being cast a lot wider now than in the past,” he comments. “In fact, the trend in the last six to nine months is that plan sponsors are saying, ‘Why stop at the purely transactional functions?'”

Clients are also asking suppliers to move up the chain into their organizations higher than before. “The administrative and the strategic components have become fairly entwined in the organization,” says Bartolai. “Learning or training, for instance, is very difficult to segment into strategic and transactional parts. They’ve become enmeshed together.”

Suppliers continue to hone their offerings with greater value propositions. Peterson says Hewitt Associates is “focusing a great deal of attention, energy, and technology right now on bringing benefits together in a way that is responsive to the regulatory environment and also responsive to the needs of our clients and their employees.”

Bottom Line

Bartolai at ACS offers advice for companies now considering outsourcing their HR benefits functions. He says it is critical to develop a clear picture of the “to-be” organization. “They need to know how they want the HR or benefits organization to look post-outsourcing, so they can better paint their Requests for Proposals and then map the responses.” Companies also need this post-outsourcing vision in order to start working on the skill sets to retain. Will the retained people have transactional or strategic skill sets?

Salary.com estimates turnover costs to be 30 percent of the annual salary of an employee being replaced. Beinke at Employease contrasts this scenario with an outsourced solution. “HR departments provide better service to their employees with outsourcing. And the better service, the more strategic they can become. Ultimately, that leads to employees who are happier.”

Lessons from Outsourcing Journal:

  • Studies in 2005 and 2006 reveal that many employers are at risk of losing their most valuable and productive employees. Employers are now charged with raising the bar in human capital management in terms of innovation, customer service, and results.
  • As benefits get more complicated, companies find it’s increasingly difficult to invest in technology and people expertise to be able to have the necessary capabilities internally.
  • Outsourcing enables the people in HR and benefits retained after outsourcing to focus on design and strategy, as opposed to tactical, transactional work that occupied some or all of their time before. It also equates to a more strategic benefits package that is aligned with what the client is trying to accomplish, such as acquiring talent.
  • Before outsourcing, buyers need a clear vision of what the post-outsourcing organization will look like and what skill nets need to be retained.


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