Outsourcing benefits administration: Learn what to consider

Outsourcing benefits administration can help companies in various ways, but HR leaders should learn what the arrangement will involve before moving forward.

Benefits administration is a necessary task but one that comes with many challenges, including following various laws and regulations and staying aware of differences in benefits for different company locations. Some companies decide to outsource their benefits administration to simplify operations.

Benefits administration involves considering different benefits options, each with its own set of costs to analyze. Benefits administrators must also support employees who are at different stages of the leave process and answer employee questions about benefits options. Outsourcing benefits administration not only relieves company employees of these tasks but also potentially reduces costs and results in more benefits options for employees.

Here's more about the most important considerations of outsourcing benefits administration.

The advantages of outsourcing benefits administration

Outsourcing benefits administration can help companies in various ways. Here are several.

Benefits administrator expertise

Benefits administrators working for an outsource vendor possess extensive experience managing benefits and are knowledgeable about legal compliance, employee options and managing claims.

HR leaders can feel confident that the administrators will handle any potential issues in all the countries in which the company operates.

Full-time vendor support

An in-house employee likely only works part of the time on benefits administration, so they might take longer to answer employee questions.

However, a benefits administrator focuses solely on managing benefits for various clients and doesn't have to manage other priorities.

Reduced costs

Vendors work with many companies, so a benefits administrator likely divides their time based on the needs of each company at the time.

If the volume of benefits questions and issues is low -- for example, immediately after open enrollment -- the company may pay less because of this reduced need for services.

Additional benefits plan options

Smaller companies might not qualify for certain benefits by themselves, but signing on with a vendor that works with multiple companies can provide new opportunities.

A vendor can pool a smaller organization with other companies, resulting in more benefits opportunities for the small company.

HR staff won't have to stay on top of changing rules and regulations.

7 questions to consider when evaluating benefits administrators

A vendor selection team should make sure they ask some specific questions when speaking with potential vendors to ensure the vendor meets the organization's needs.

1. Does the administrator only work with the HR department, or do they communicate directly with a company's employees?

Understanding how company employees will communicate with the vendor is key, as different departments require benefits information. For example, HR works with employees preparing to go on leave and return from leave, while payroll staff requires information about the amount of benefit costs to assign to employees when processing payroll.

If HR staff will serve as an intermediary between the administrator and company employees, HR staff should prepare for that beforehand.

2. What is the fee structure?

The vendor selection team must understand each vendor's fee structure. Some vendors may charge a base fee and then add extra costs for additional services, while other vendors may include all required services in a higher flat fee.

The vendor selection team should also evaluate which services aren't included and which will be the HR team's responsibility.

3. Do they have experience with companies of a similar size in the same industry?

The vendor's employees should be familiar with their clients' industries and related benefit plans.

Familiarity with a particular industry can ensure vendor employees will knowledgeably answer employee and HR staff's questions.

4. What is the process for moving from in-house to outsourced benefits administration?

The process of moving to an outsource vendor might involve complex steps such as implementing new benefits software, and the vendor selection team should find out beforehand so they can incorporate that into their decision

The vendor might also be able to estimate the time commitment required for meeting with the vendor's employees. At those meetings, vendor employees will get to know the HR team, the company's benefits, and other details to help them provide better support.

5. What is the expected vendor response time when employees and HR send questions?

The vendor should provide a service level agreement that states the estimated response time for different types of requests.

The service level agreement should also explain how requests are prioritized so employees or HR staff can mark requests with the right priority level. For example, vendor employees may respond to urgent requests within two hours, while they may respond to low-priority requests within three days.

6. Does the vendor have experience in all company locations?

Because labor laws differ in each state and country, the vendor should possess experience in the required locations.

The vendor should be able to share the locations where they currently support customers and outline their process if a customer lives in a location that is new for the vendor.

7. What are the added benefits of partnering with the vendor?

The vendor might offer additional services that the vendor selection team didn't consider when developing requirements.

For example, the vendor might offer outsourcing options in areas such as payroll, or they might be able to offer more benefits by pooling their smaller customers. The vendor may also offer employee services such as webinars or information sessions.

Dig Deeper on Core HR administration technology

Business Analytics
Content Management
and ESG