Risk Management · August 05, 2021

Outsourcing Employee Benefits Management: What You Need to Know

Have you considered outsourcing your employee benefits management? The truth is, managing an employee benefits program is complex. It takes time to learn the legalities and products.

As your company grows, employee benefits management only becomes more complicated. It also takes you away from your core focus—running your business. Offloading this important responsibility could benefit your business in myriad ways.

What does outsourcing employee benefits mean?

When you outsource the management of your employee benefits, it means working with a third party to provide and administer health, insurance and/or retirement benefits for your staff instead of doing it yourself or having your human resources personnel handle it.

In small companies that don't have a human resources department, this moves the responsibility of overseeing time-consuming, detailed administration tasks from the business owner or sole human resources staff member to an outside service provider.

Why should you outsource benefits management?

Outsourcing your employee benefits can help your company operate more efficiently and effectively, offering many advantages for businesses of all sizes. Some of these advantages include:

  • Access to a wider array of benefits, products and programs
  • Easier compliance management
  • Support to maximize your benefits offerings
  • Reduced liability
  • Decreased human resources support personnel costs
  • Improved efficiency in setting up, administering and managing benefits programs
  • Less stress on business owners, as the responsibility of administering the program is removed from their plates
  • Arms-length decision-making—you don't need to make decisions on your employees' or colleagues' claims
  • Flexibility to expand the business program or upgrade services as your business grows

What should you consider before choosing to outsource?

There are a few things to keep in mind before having someone else manage your program.

  • First, when you outsource your benefits, you give a third party access to the sensitive personal data of your employees.
  • Second, removing this responsibility from your human resources department could leave your business without a knowledgeable benefits staff member. This can be a disadvantage when assessing the effectiveness of your benefits service provider.
  • Third, outsourcing benefits management means your business must make an initial and ongoing investment, with annual contract negotiations and renewals.

How to find a company to administer your employee benefits

Start by asking the company that provided your benefits in the first place. The staff should know the insurance policies and/or investment details well, and managing your employee benefits could be a simple add-on service. If so, it's likely less expensive than getting services from a different company.

Your other option is to find a company or individual who focuses on benefits administration. Before beginning your search, it's important to have a clear outline of the services you'll need and details about your business that the service provider may need to generate an accurate quote.

For example, maybe you need someone to administer health insurance, life insurance and retirement plan selection, management and claims for 20 employees. Or perhaps you simply need retirement pension and plan selection and management. The more details you provide upfront, the less likely you'll face additional surprise costs down the road.

What to watch for

When evaluating the effectiveness of a third-party employee benefits management service, keep these criteria in mind:

  • Accuracy: How many errors appear in employees' benefits and claims?
  • Timeliness: How quickly do claims get processed?
  • Customer Service: How easy is it to speak to a person on the phone?

Even better, when negotiating your initial contract for outsourcing employee benefits management, address these service expectations in writing.

Is it time to outsource your benefits management?

How do you know when it's time to have someone else take over your benefits management? Ask yourself the following questions to help decide if that time is now:

  • How much time do I (or my HR personnel) spend weekly on employee benefits?
  • During this time, what alternate activities could we be doing to grow/improve our business instead?
  • How much are these alternate activities potentially worth?
  • How much money could my business save by outsourcing benefits management?

If you're running a thriving business, you likely already have a lot on your plate. Offloading the responsibility for managing your employee benefits can free up your time to focus on doing what you do best—growing your business.


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