HR Outsourcing in a Down Economy

HR Outsourcing: Can it help your business in a down economy?

The mid-way point of 2009 has come and gone and the economic forecasting remains positive, however the statistics still remain grim. Unemployment remains at a 20 year high, consumer spending is at the lowest levels since the early 1980s, and disposable income has sunk to levels not seen since 1947. To add to this, health care reform has the country in a tailspin, especially the large populations of employees who make their living in the healthcare industry. Concerned employers wonder how it may impact their businesses in the short and long term. As the economic downturn continues, employers across all market sizes report their top business concerns or threats to their business:

Threats to the Business

1. Diminished productivity due to deflated employee morale and leaner staff
2. Dropping revenues and unpredictable cash flow
3. Increasing layoffs and the potential for rising lawsuits
4. Increasing insurance for healthcare premiums and operating expenses

Employers, both large and small, are not prepared to watch and wait from the sidelines. They have taken matters into their own hands to offset rising operational costs and dropping profits through the use of outsourcing. “Outsourcing” is defined as, “the procuring of services or products from an outside supplier or manufacturer in order to cut costs.” Almost every employer engages in at least one form of outsourcing. In recent years, and continuing through the recession, Human Resources and Accounting top the list as key areas where businesses can immediately realize cost savings and operational efficiency. Because both of these processes are not core functions of the business itself, a return on investment or business case for outsourcing to a third party is easily made. To learn more about the key drivers behind Outsourced Accounting click here

HR Outsourcing Industry Continues to Soar

Human Resource Outsourcing is a business strategy that allows an employer the means to reduce overhead expenses, reduce employer liability, and improve employee productivity. While some employers may select to outsource only specific HR functions like payroll or recruiting, others have opted for a comprehensive, single source solution. To learn more about the differences among HR solutions and providers available to the market, click here.

HR Outsourcing continues to gain momentum as a viable solution for challenged businesses. According to IDC, a global research firm, outsourcing Human Resources functions has become the fastest growing segment of the broader business process outsourcing (BPO) industry. It grew close to 70 percent over the past 6 years, with companies worldwide spending more than $103.3 billion.

Additionally, Centripetal Consulting Group obtained information from Everest Research Institute, an independent research and analysis organization which states that North American HR outsourcing transactions reached $25.4 billion by the end of 2007, an increase of 19 percent over the previous year. In 2008, despite the slowing economy, HRO transactions grew an additional $2.9 billion, an increase of over eleven percent over the previous year. Everest Group, the parent company of Everest Research Institute contributes to this growing number of business utilizing an outsourced HR strategy. Centripetal Consulting Group is currently working with this 70 employee firm to select the right HR outsourcing technology partner which will enable the company to streamline and automate employee related transactions and internal processes.

Why Outsource?

While large corporations feel the impact of a recession, these factors are magnified for small businesses and their recovery time is significantly longer. Public corporations may report diminished returns for their shareholders and are subject to public scrutiny. A small employer can easily go out of business overnight. This is frightening for everyone because small businesses or the SMB market are the lifeblood of the economy. These businesses are run by innovative and motivated entrepreneurs who invest their personal savings, time, and livelihood. They need protection more than a large company, yet many times either cannot afford the internal HR resources or aren’t really aware of their true exposure as an employer.

One of the reasons for the continued growth in HR outsourcing may be attributed to employers who had not considered outsourcing in the past, are now seeing the benefits of HR outsourcing as a means to reduce overhead and cut operational expenses. They’ve been forced to slash headcount. This creates a “do more with less” environment which can compromise productivity. But from a legal and compliance standpoint, employers feel vulnerable to increased regulation associated with employee terminations. The changes to COBRA are one example. This fear has motivated employers to consider the outsourcing to alleviate the burden of dealing with employment related compliance and administration.

The key for small employers to successfully navigate through a recession is to stabilize revenues and improve employee productivity. The cost associated with labor and employee benefits are reportedly the two top line items on the balance sheet, thus making HR accountable and responsible for maximizing employee productivity while minimizing costs and risk. Employers look to HR outsourcing as a means to achieve these objectives:

1. Stabilizing operating expenses increases company value and calms corporate anxiety.
2. Streamlining operations reduces unnecessary overhead and cuts wasteful spending.
3. Lowering insurance premiums reduces overhead and expenses.
4. Minimizing employment risks reduces the potential of lawsuits and complaints to the federal and state agencies, and the resultant legal fees and judgments.
5. Training and motivating staff increases employee morale and improves productivity.

Despite the recognition by many small employers as critical priorities to their success, most simply cannot afford to institute the necessary changes. Even the most efficient employers will be unable to devote the time required to make meaningful changes to corporate policies and procedures. Partnering with an HR Outsourcer helps an employer achieve relief. According to Hewitt Associations, a world-wide provider of HR consulting services and research data, the most common reason for engaging an HR Outsourcing firm is to reduce overhead. Companies clearly recognize the value of utilizing an outside resource to conduct various business-related activities, as compared to maintaining these functions internally. Other reasons to outsource include:

1. Access to outside expertise
2. Improving service quality
3. High cost of remaining up-to-date with rapidly changing environment
4 Eliminate high volume of low-value transactional activities
5. Reduce management distractions away from core business
6. Leverage existing staff to focus on key competencies

Although there are several “flavors of outsourcing”, the providers are not all created equal. However, there are two main types of HR Outsourcing providers: Traditional HR Vendors and Professional Employer Organizations (PEOs). Some employers may select to outsource specific functions, others have opted for a comprehensive solution. To learn more about the variety of the HR solution offering, click here.

Traditional Human Resource Vendors

Traditional HR vendors are firms that specialize in one particular service area, such as payroll, benefits brokerage and administration, recruiting, or training. In a traditional outsourced model, the employer selects a mix of HR vendors to perform specific function that encompass all of their outsourcing needs. To learn more about both the benefits and downside to this approach click here.

Professional Employer Organizations

The second main type of outsourcer is a PEO or co-employment vendor. In this relationship, the PEOshares many of the responsibilities of being an employer on behalf of their client. Through co-employment, small organizations access the economies of scale enjoyed by large corporations. In contrast to traditional HR vendors, the PEO provides a wide array of HR services, effectively consolidating multiple vendors under one roof.

The four key service areas include:

• Human Resources compliance and administration
• Employee Benefits and administration
• Workers’ Compensation insurance and safety consulting
• Payroll and tax filing services

This type of employment arrangement can offer several benefits to an employer, especially in a down economy. Many times a PEO can be a savior to a business owner who cannot afford expensive health premiums, is overwhelmed with paperwork, or is concerned with maintaining HR compliance. Click here to explore if a PEO is a good fit for your business.

On the flip side, an employer may only benefit from a co-employment arrangement for a short period of time as it no longer seems financially compelling to fully outsource the HR function. This trend may occur once the economy strengthens or changes in healthcare occur. Because the PEO performs all HR transactions, it is sometimes confusing or difficult for a company to determine their true costs for each of the services delivered by the PEO. Even if you do determine that it makes sense financially to leave thePEO, it can become even harder to piece the right vendors together to unbundle from the PEO. For help in this area click here.

The Centripetal Top 10

Top 10 List of Why Companies Should Do Business With Centripetal

1. The “No Cost” Model: Centripetal does not charge its clients a fee for the consulting services we provide. As a small to midsize employer, we understand that every dollar counts. We chose the “non-billable” model because we recognize our target market doesn’t budget for a costly consultant, yet is in the most need of our expertise. Our leveraged vendor relationships are eager to earn your business and are willing to compensate us for the opportunity to work with you!

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Experts in the flavors of HR Outsourcing

The Importance of Broker Selection

Scott Lewis

The Importance of Broker Selection: 10 Must-Ask Questions

Selecting the right health insurance broker is crucial to an organization’s overall strategy for managing employee benefits. This decision is even more critical when a company has decided to leave a PEO and now seeks direct representation within the health insurance carrier marketplace. Finding the right expert to represent your company is more difficult than normal because the consultant must fully understand the underwriting implications imposed by the carriers. Coming from a PEO, the employer bears no loss ratio or any claims history from the prior benefit plan. This creates an unknown or risky scenario for the insurance underwriter. This broker or consultant should know how to negotiate around this by presenting the most favorable explanation as to why the employer has been insured through a co-employment arrangement.

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Open Enrollment Process- The Three Approaches

The fact is that the open enrollment process is evolving, especially for small to mid-size employers. It is migrating from a stand-alone, manual process to an automated, integrated environment where the latest technologies combine to make open enrollment as efficient, effective and productive as possible. Current research shows a migration from older, more obsolete methods of processing benefits applications to web-based initiatives that greatly streamline and enhance the entire process, thus creating a compelling employer ROI and more favorable employee experience.

 

The current state of “open enrollment” is a spectrum of 3 main approaches:

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Workers Compensation vs. Non-Subscriber Coverage for Texas Employers

As the economy continues in a downward spiral trend, employers continue to look for ways to cut costs in non-revenue generating areas of their business. One of these key areas is insurance.  As a private Texas employer, there is an option to “opt out” or non-subscribe from the workers compensation system.  Instead, an employer can choose to assume the risks associated with a potential lawsuit should an employee be injured at work or purchase alternative insurance that provides a lesser benefit. Although, this may be a less expensive alternative, it is important to know the key differences between workers compensation (WC) and occupational accident (OA) in determining if this is the best area to cut costs.

Workers Compensation

Texas employers who choose to maintain workers’ compensation insurance can elect to purchase an insurance policy from a private insurance company, or self-insure. To self-insure, an employer must meet the requirements of the Texas Workers’ Compensation Act and become certified by the Texas Workers’ Compensation Commission. Self-insured employers have the same rights and responsibilities as employers who buy policies from private insurance companies, they are simply utilizing an alternative funding mechanism that includes more out-of-pocket risk vs. lower premium.

In return for an employer paying premiums toward workers’ compensation insurance, workers are guaranteed to be compensated for their injuries and lost wages in the event they suffer a work-related injury or illness, regardless of fault. WC premiums can fluctuate based upon claims experience which are measured by a regulated experience modifier. However, regardless of claim volume or risk tendency, the employer holds no personal liability for losses because WC is governed under tort law.

Benefits for Workers Compensation

Occupational Accident

Texas employers can also choose to “opt out” from subscribing to workers’ compensation. Perceived by many as a worthy alternative to WC, Occupational Accident insurance is an insurance option that provides employers and their employees a degree of protection should a work injury or accident occur.

OA insurance provides coverage for medical costs associated with the injury, disability payments for the injured worker as they are recovering from their injury, and a scheduled benefit for accidental death and dismemberment. The employer chooses a benefit period, usually two or three years, as well as a deductible that is applied to each accident.

The inherent employer risks are unlimited liability, including possible punitive damages. If they lose lawsuits arising from workplace accidents, and in the event of a lawsuit, they forfeit their right to claim one of the three common law defenses:  a) The employee knew of the inherent dangers and assumed the risk;  b) the employee contributed to their own injury or illness (any negligence on the employee’s part, however small, prevents the employee from collecting for injuries); or c) a fellow employee’s negligence caused the injury.

Benefits of Occupational Accident Coverage

Bundled HR Service Solutions vs. Best of Breed Providers

The HR BPO market is forecasted to grow from $20.8 billion in 2004 to $31.3 billion in 2009, reflecting an 8.3% compound annual growth rate. The estimated revenue is $28.69 billion in 2009. (Robert H. Brown, “Gartner Research – Sourcing options Grow as the HR BPO Market Matures,” July 26, 2006)

One of the primary reasons for this sustainable growth is the value that both employers and HR service providers recognize in outsourcing non-core business functions to third parties. This trend may even see more growth from 2009 to 2010 because of the down economy. Employers are increasingly looking at HR outsourcing as an opportunity to streamline processes, reduce direct and indirect costs, get access to the latest technology and tools, consistently achieve better quality, and align HR with the overall business in the most cost-effective, efficient time possible. Many employers feel that the benefit of outsourcing is even more effective when it is done with a single source provider who offers multiple HR services in a bundled, integrated offering.

Many HR service providers have increased their serving offerings beyond their core business to adapt to demands of the market. For example, a 401(k) provider might now offer payroll services, or a recruiting company is now offering benefits brokerage services. Even further, a PEO starts marketing non-co-employment solutions via an ASO arrangement. In several instances, strategic alliances are formed as non-competing HR service providers align in order to accommodate the multiple or changing needs of their client via a bundled “menu of services” type offering. Other HR service providers have chosen to acquire additional companies instead of partnering to strengthen their offerings. Still other firms choose to build additional offerings through their own internal resources and HR industry expertise.

My question then becomes: Do the benefits of a consolidated offering truly outweigh those of “best of breed” providers?

Perceived Benefits of Consolidated HR Outsourcing Offerings:

1. Integration and streamlined processes. With HR technology being at the core of many HR service offerings, several transactional processes can be automated. This is especially true if all HR processes are managed within a single system or by a common vendor. An example of this would be when an employee terminates, a COBRA notification is automatically sent because the payroll provider and COBRA vendor are one in the same. Another example may be that when the HRIS system is told that an offer is being made to a candidate, the process for completing a drug/background check is initiated. In many instances, employers are able to eliminate headcount or reallocate duties as manual processes become automated and less error prone.

2. Multiple service offerings. These allow for the most competitive pricing structure because a bundled offering produces economies of scale. The more business that is given to a single vendor, the more leverage for negotiation. This also holds true for guaranteeing higher service related agreements.

3. Simplified employee experience. One point of contact or one system to access for multiple requests, creates an efficient employee experience. This heightens employee productivity and increases employee satisfaction. A new hire can enroll for benefits, request time off, and view a paystub in a centralized location.

4. Ease of vendor management. Coordinating with multiple vendors is time-consuming and creates risk when dealing with time sensitive and sometimes compliance driven processes. A single vendor approach creates efficiencies and reduces errors. A consolidated invoice for services is an example of this.

Perceived Benefits of “Best of Breed” Multi-HR Vendor Approach

1. Quality of service delivery. A specialized vendor that offers one core service tends to offer a higher quality experience because they are not focused on any other area. Many times this allows for custom solutions designed with the client in mind rather than a “boxed” approach. An example would be a HRIS vendor that delivers a function-rich system that is configured to the needs of each customer vs. an out of the box software application.

2. Access to expertise. Specialty vendors seek a competitive advantage by deploying the best possible industry experts to meet the unique needs of their clients. An example of this would be a health and welfare consulting firm that specializes in servicing employers with self-funded benefit plans.

3. Ease of transition to begin or end vendor relationship. Implementing of a multi-faceted service offering can be a very time consuming project which may create compromised success due to deadlines. Focusing on just one functional area creates a higher success probability because a project isn’t dependent on competing projects. Additionally, if a consolidated vendor is performing well in one area and poorly in another, the entire relationship may be compromised. An example would be an employer terminating a benefits consultant relationship due to poor service and being forced to change HRIS systems because it is core to the bundled offering.

If you are challenged with making a clear distinction as to the best approach for your company, I would suggest asking a few key questions.

The first being what does your company value more: quality or simplicity. Furthermore, are you to simply save hard dollars costs or do you see a greater opportunity for indirect savings by increased quality relationships?

If you are leaning towards a consolidated approach, I suggest asking detailed questions around the service integration. Qualify which resources are actually internal or if some are outsourced partnerships. With this, clarify defined responsibilities of the service provider vs. the employer and more importantly who holds the liability.

If a specialist approach seems more fitting, ask for specific examples of success stories from their clients who were able to achieve measurable benefits that could not otherwise be realized in a consolidated approach.

10 Steps to Control Your Workers Comp Premium

An employer’s experience modification factor is an important component that is used in calculating a company’s workers compensation premium. Controlling your mod will help you to control your costs. Here are a few tips to live by if you are trying to control this cost and your bottom line.

1. Investigate accidents immediately and thoroughly. Take corrective action to eliminate hazards. Be aware of fraud.
2. Report all claims to carrier immediately. Alert carrier to any serious, potentially serious, or suspect claims. Frequently monitor the status of the claim and communicate with the adjuster to resolve as quickly as possible.
3. Take an aggressive approach to providing light duty to all injured employees upon their release from treatment. Supervise light duty employees to assure their conformance with restrictions.
4. In serious cases that involve lost time, communicate with the claims adjuster so that they recognize your interest in returning the injured employee back to gainful employment.
5. Set safety performance goals for persons with supervisory responsibility. Success in achieving safety goals should be used as one measure during performance appraisals.
6. Develop a written safety program and train employees in their responsibilities for safety. Incorporate a disciplinary policy into the program, one that holds employees accountable for breaking the rules or rewards them for correctly following safety procedures.
7. Frequently communicate with employees, on a formal and informal basis, regarding the importance of safety.
8. Make safety a priority. Senior management must be visible in the safety effort and must support improvement.
9. Evaluate accident history and near-misses at least monthly. Look for trends in experience and take corrective action on worst problems first, as soon as the problems manifest themselves
10. If you don’t have the resources available internally to implement these suggestions, hire a third party who specializes in minimizing the risks.

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