Pros and Cons of Outsourcing Benefits Administration

Affordable Care Act regulations and other government rules have many employers wondering whether it would be more cost effective and prudent to outsource employee benefits administration.

More than half of mid-sized and large companies believe health care reform will increase the complexity of employee benefits administration, according to a survey by the ADP Research Institute. Companies responding to the survey said they are most likely to outsource complex compliance tasks for COBRA, flexible spending accounts and 401(k) administration.

What to Consider

When a company is experiencing growth, employee resources can get stretched. Outsourcing benefits administration can help a company focus its energies on its core business.

In addition, make a mistake, and it can cost you. If your HR department is unsure what it needs to do to stay in compliance, then outsourcing certain tasks to experts can help you avoid lawsuits, fines and penalties. If a mistake is made, then some of the liability falls on your third-party vendor. Also, a firm with expertise in health benefits can research and advise you on methods to reduce insurance premiums.

Outsourcing also helps reduce workforce needs and saves salary and benefit costs. It will help you save time and money if the talents of your human resources staff can be better used for other tasks.

Reasons to Keep Benefits Administration In-House

According to ADP, many mid-sized companies choose to keep employee benefits administration in-house because it increases interactions with employees. It also makes it quicker to make changes to benefits or to fix errors, rather than waiting for a contractor to do it.

Keeping all operations in-house also has the benefit of your company keeping control. Employers may have concerns that something will be missed or they won’t understand what’s being done if they don’t oversee the process. There’s also the possibility that important confidential data will be shared by an unscrupulous vendor.

Using an outside vendor also means not having control of delivery times or quality and possibly not being their first priority.

What to Look for When Outsourcing

To find the best vendor for your project, consider these points:

  • What are the most important services you want covered?
  • Do your research. Get recommendations on experienced vendors who specialize in handling your company’s particular needs. Look for a firm with a good reputation for reliable service to all of its clients — not just the larger, more profitable ones. It’s also helpful to find a vendor that provides a range of services in case you need additional benefits work.
  • Prepare a request for a proposal (RFP) and carefully describe what you want accomplished. The RFP should have an introduction, summary of the requirements and a brief background of your business. When you receive a proposal, look closely at the vendor’s specifications, terms and conditions and references. Make sure you are getting real value for the money you’re spending.
  • Make sure the contract lists priorities and costs. You may want to have your attorney review any contracts to protect your firm from any unwanted liability.

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