The pros and cons of outsourcing benefits administration

To outsource or not to outsource benefits administration, that is the question - whether to a third party specializing in benefits administration, or to a PEO (professional employer organization) that includes benefits on its list of services. As with any decision of this nature, it depends… on the details of your business needs, the composition of your workforce, and which of the following ‘for’ and ‘against’ factors are most relevant to you

Pros of outsourcing benefits administration

Less administration, more efficiency

For any company – but especially a small one – HR tasks and processes are likely to be seen as a distraction from core business. Whether this is true or not, outsourcing benefits administration does offer some efficiencies, not least of which is the fact that all that paperwork is taken off your hands. In turn, this offers an opportunity to reduce the staffing resources you’re putting into HR; or take advantage of having less routine work to use those resources on more strategic and impactful challenges.

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Better benefits for your people

A specialist service provider should bring greater expertise to the table, and access to a greater range of insurance plans and programs. You don’t need in-house expertise when you can outsource benefits administration to someone else, who can create your tailored benefits package(s) for you.

Reduced costs

A specialist supplier will also be servicing other clients and when the aggregate number of employers that they service is used as leverage, that supplier will be able to negotiate better terms and win larger discounts than you would on your own. And as for technology, a supplier working on a large scale will likely be using enterprise level benefits software which would not be a viable financial choice for clients individually.

On the right side of the law

The compliance landscape for employers is constantly shifting and evolving. Outsourcing automatically makes compliance ‘somebody else’s problem’, requiring the service supplier to maintain up to date expertise on your behalf. This also shifts the liability for non-compliance; not necessarily 100% but certainly that liability is shared when you contract with a third party to provide benefits administration for your workforce.

Cons of outsourcing benefits administration

Less control

As any manager knows, when you delegate a responsibility you also (have to) give up some of your control over the situation. In smaller businesses especially, the owner is likely to have his or her finger in every pie and the feeling that a whole area of decision-making now belongs to someone else may be too much. The key is to find a service provider that takes the time to really understand your business and agree some protocols so that you don’t feel completely out of the loop.

Policy switching 

One of the above benefits relates to the service provider being able to ‘shop around’ for the best deal for its clients. The potential downside of this is that they tend to reserve the right to switch insurance companies and sometimes that change isn’t for the better for every single employee. It’s important to find someone who sees clear and timely communication of policy and package changes as part of good benefits administration.

Impersonal service

One advantage of keeping benefits (and HR in general) internal is that an in-house team is part of the family. They get to know the people they look after, and can provide a more personalized set of services. A visit to the HR department might be as easy and casual as walking up to the next floor. With an external benefits administrator, it’s more like dialling a call centre – it’s usually an efficient but not necessarily warm experience.

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Dave Foxall

About the author…

Dave has worked as HR Manager for the Ministry of Justice for a number of years, he now writes on a broad range of topics including jazz music, and, of course, the HRMS software market.

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Dave Foxall