Outsourcing is not an overnight solution to the issues associated with benefits provision, but if the process is managed and monitored well, there could be cost savings to be made.
The first rule in business, so the saying goes, is stick to what you know. And when it comes to pulling together a benefits package capable of increasing motivation and boosting loyalty among staff, truer words have never been spoken.
Building a successful benefits package can never be a solo effort. It requires skill across areas such as communication, design, marketing, sales and finance, which is why, when HR departments realise they are coming up short on the expertise front, they look to outsource.
According to research by benefits specialist Ceridian, HR Outsourcing and the Credit Crunch (April 2009), 40% of HR decision makers outsource a capability that they don’t possess in-house.
This is certainly the case at fuel company Total UK, where outsourcing is used effectively to ensure that payroll and benefits are as strong as they possibly can be across the company.
Nicola Russell, compensation and benefits adviser at the firm, explains: “With the right provider, [benefits] can be run far more smoothly, because specialists can pick up problems very quickly. Our payroll is outsourced because we simply can’t have specialists in everything.”
Mary Robertson, managing director at consultancy firm Reward Matters, says third-party providers in the world of benefits not only have specialist knowledge but also have access to useful software that can help revamp any package.”When it comes to outsourcing, employers can optimise the benefits message they are sending to staff, without the hassle in the back-office or the need to develop the systems to do it,” she explains.
Opting to either fully or partly outsource can also give companies the chance to release HR-based employees from the day-to-day duties around administering employee benefits, which not only allows individuals to focus on other tasks, but can also have cost-saving implications.
Reducing costs has fast become a top priority for organisations feeling the pinch of the recession, and outsourcing benefit provision can even lead to a drop in the number of full-time staff needed in the workplace, says Steve Herbert, head of benefits strategy at benefits specialist Origen.
“The biggest reason behind outsourcing is – as is the case with most things at the moment – connected to costsavings. It is cheaper, in theory, to outsource than to have people within the HR department taking control,” he explains.
It is not only additional knowledge that companies can gain through outsourcing. Third-party suppliers have a greater level of bargaining power, enabling them to secure far more attractive deals, and this is certainly the case when it comes to employee-paid voluntary benefit schemes.
Whereas an HR department’s buying power is limited to its own employee population, some providers can barter with an entire client list of employees, multiplying the chances of stores and service providers wanting to offer discounts and savings, explains Glenn Elliott, managing director at voluntary benefits provider Asperity.”We negotiate for discounts on behalf of 1.2 million staff, so it’s easier for us to get decent discounts. Even large firms with 10,000 staff won’t be able to negotiate better deals,” he says.
Acquiring the services of a third-party provider is the easy part, but companies that want to reap the rewards of outsourcing benefits provisioncan only do so through having a two-way relationship with that provider.
Outsourcing is sometimes seen as a means of dumping problems, such as low take-up or poor communication of perks, onto somebody else, and once passed across, the problem is resolved, but partnerships need to be formed otherwise organisations can find their problems increase instead of fall away.
HR Outsourcing and the Credit Crunch reported that 42% of HR decision makers were concerned that outsourcing would reduce their control over the HR function within the company, which could have devastating effects.
Herbert explains: “My concern is that it is very easy for a company to outsource its benefits strategy and then lose a handle on that strategy, and then not be clear on whether the provider is making the right decisions.”
Without a partnership and an ongoing relationship between provider and employer, there is every chance that companies will become divorced from their staff, and unaware of what makes them tick, how they operate and, more importantly, what their intentions are.”Employers could miss certain indicators from the workforce by being distanced from the benefits strategy, so where you have a really key employee who hasn’t joined the pension scheme, it is unlikely to get flagged up. That employee could be on his or her way,” says Herbert.
For providers to be able to offer an effective and well-received benefits package, they must have a decent grasp of the organisation’s culture. Information such as average age of staff, where staff are located,or the male to female ratioare all vital.
Just as important is a provider’s knowledge of how to communicate to a particular workforce, because providers may well be experts in communication but different channels will suit different sets of employees.
Small but not insignificant features of the package, such as the way it is branded, including the use of colours and logos that staff trust and recognise, can make or break it.
“Providers need to spend time with staff. A good provider will not promise to deliver in three weeks; they’ll ask for three months and use that time to agree a communications plan, because although they’ve only known the company a short time, they should know what works and what doesn’t,” explains Robertson.
To get around this at Total UK, any work that third-party providers complete where benefits are concerned must be run past the internal HR teams first to ensure the end result is a joint effort.
Outsourcing is not an overnight solution to the many issues associated with benefits provision. Butorganisations that dedicate time to selecting the right providerand forming an ongoing partnership will be best placed to save money and maximise the effectiveness of their benefits package through outsourcing.
Case study: TNT
For delivery firm TNT, outsourcing seemed like the logical next step when members of the HR department were being stretched into areas of benefits administration that distracted them from their day-to-day tasks.
David Taylor, reward manager, explains: “The resources in our HR department were being stretched at it was, and it would have been difficult for us to conduct a four-month communication programme across all staff for a new scheme.”
He was also keen on provider Personal Group’s specialist ability in negotiating deals for employees, and wanted to give staff access to a greater range of benefits than were being arranged internally.
“The sheer buying power was important for us. The reality is that the provider represents a far greater number of staff than just at TNT. They can achieve discounts that are more valuable than we could achieve in isolation,” admits Taylor.
Maintaining control and owning the benefits package was a top priority for the reward team. It was important that even though a provider produced the package, it was sold as a TNT product.
“You can’t outsource and then lose touch. It would not make sense to put your [company] name on something that you didn’t really manage or control,” he adds.
- Reducing the headcount – Benefex says that for a company of 750 to 1,200 employees, outsourcing a flexible benefits scheme could remove the need to employ one full-time member of the workforce earning around £30,000 per year.
- Processing and compliance costs – the administration involved in benefits can also be dramatically cut when outsourcing, say Benefex. It claims that companies will be able to save around 33% per year in this department.
- Benefits administration seems to be an issue for many employers. The Thomsons Online Benefits Survey 2009 found that 26.5% of the 523 respondents polled said the burden on internal resources was their biggest benefits administration issue. But 31.5% of those surveyed said the administrative efficiency of benefit providers was their biggest issue.
- Savings for staff – whereas employers can arrange local discounts for staff, they cannot compete with the buying power of the large providers. Asperity negotiates on behalf of 1.2 million employees with five in-house specialists dedicated to securing deals. But, according to Thomsons’ survey, many employers are clueless about how much they spend on employee benefits: 67.8% of those organisations polled said they didn’t know.