Employee Benefits Administration
Market Analysis Summary
Outsourcing can be implemented without regard to the size of the company (measured by profit or employee population), or to the business in which they are engaged. Any and all companies who offer benefit programs to their employees can reap the rewards of outsourcing certain functions.
EBA is focusing its efforts on the small to medium size employers. Today, these employers experience not only changing government regulations, but also an mobile and diverse workforce. In order for the companies to stay competitive in their marketplace, they must be able to attract and retain employees while staying focused on the success of their business. Therefore, the Human Resources departments are faced with multiple tasks — they must not only stay current and offer attractive benefit programs, but also keep up with the day-to-day administration of running the department and its programs. It is the day-to-day administration which is so time-consuming. This administration is viewed as “overhead” for the company, and depletes the time and resources which should be focused on the more important issues. Therefore, companies are looking outside of their organization for answers, and the most desirable solution is outsourcing the administrative tasks.
Michael Losey, former President of the Society of Human Resource Management (SHRM), spoke at the 2000 SHRM annual conference and stated that the future of Human Resources is about competencies… HR’s and the company’s employees. And, in order to become a strategic business partner, we need to expand out knowledge of laws, social and cultural issues, and leading-edge HR practices.
However, while striving to becoming a strategic partner, Human Resources is also faced with a 224% increase in the amount of HR transactions*. Outsourcing these functions is not a trend — it represents survival.
*SAP™ advertisement in HR Magazine, a SHRM publication
4.1 Target Market Segment Strategy
EBA will target companies with 10-500 employees. It is EBA’s goal to be recognized for providing high quality benefits administration and outstanding customer service for this size client who is often overlooked in the market place.
The ratio currently used today to substantiate the size of a Human Resources department is one HR professional per 100 employees. As a company grows, the HR department should also grow proportionately. However, most smaller companies are charged with complying withy the federal and state employment and discrimination laws no matter their size. Human Resources departments are responsible for this compliance. Therefore the level of expertise of a ‘personnel clerk’ twenty or so years ago, does not parallel the expertise once would need today. There are many companies with 500 employees or less whoa re faced with laws that only existed in the last 10 or so years.
In summary, companies now have many more Human Resources related rules and regulations to comply with, and adding more ‘overhead’ personnel is very costly. By outsourcing these administrative functions, companies are paying for a service and are not burdened by more overhead costs.
4.1.1 Market Needs
The outsourcing of an administrative business function can truly benefit any size or type of company. It is estimated, by SAP™, a major HR technical company, that Human Resources transactions will increase by 224% by 2006. And, as per the Industrial Democracy Commission, (IDC), the amount spent on Human Resources outsourcing is expected to reach $10.2 billion by 2003. These estimates include all types of industry and all sizes of companies.
The following quote is taken from the book, Outsourcing Human Resources Functions, written by Mary Cook: “If you think HR outsourcing is a trend that will dissipate with time, think again. Outsourcing is a serious and permanent new development. When done properly, outsourcing can deliver radically improved services and significant bottom-line savings — benefits that are too attractive to be ignored.”
Human Resource professionals need to become a strategic partner and assist their companies in becoming and staying an employer of choice. Administrative functions are increasing at an astronomical rate, and even though automation can help to some extent, employees still need the personal service of an HR department. As the HR departments become overwhelmed with the amount of administrative transactions, EBA can provide this personal service to their employees.
4.1.2 Market Trends
The trend today is for Human Resource Professionals to assist their companies in basic survival and growth. Unemployment is at an all time low, and companies need to be recruiting, hiring and retaining the right people. HR is the key. Once the employee is hired, HR needs to work on staying competitive — keeping their companies on the leading edge of work and life issues in order to sustain the workforce. Employees are looking for more than just base pay to keep them at a job. The benefits need to be current and up to date — not just health, life and disability, but also time off and flexible work life issues need to be addressed. Employee retention is one of the most visible ways a Human Resources Department can substantiate a return on investment. When these departments become overwhelmed with the day to day “adminstrivia”, other more important functions fall through the cracks. Outsourcing this administration is the answer for many companies.
4.1.3 Market Growth
Companies are discovering the strategic value that HR professionals can have on their business — it is imperative that Human Resources attract, obtain and retain the workforce.
With an estimated increase of HR administrative transactions of over 200%, the strategic value of HR is in jeopardy. It is very difficult for any HR department to demonstrate a good Return On Investment (ROI) for the company, especially when their time is eaten up by administration concerns. Therefore, requesting more headcount to help with this administration is not a good option.
A Benefits Administrator in the Philadelphia area has an average annual base salary of $45,000. In addition to that, a company will need to pay benefits and taxes on that amount for an estimated total of $63,000. For a company with 250 employees EBA could handle basic benefits administration for $36,000. As companies become aware of administrative outsourcers, and the amount of money and time to be saved, outsourcing will grow.
4.2 Service Business Analysis
Outsourcing is not a brand new trend in the HR market place. However, the service providers in recent years have focused on defined contribution plans (401(k)) or defined benefit plans (pension plans). Outsourcing COBRA and Flexible Spending Accounts are more recent additions, however, as stated previously, these functions are usually a sideline added to the true focus of the company. For example: A third party administrator for a self insured client may offer administration of COBRA and HIPAA considering that they have a database of the employees information, but COBRA and HIPAA are not the true thrust of the business. Nor will this type of company provide administrative services on other benefit programs.
Employee Benefits Administrators’ vision is “to be a major supplier of outsourced benefits administration for small to medium size companies.” The benefits administration services and the customer service of the employees is not a sideline service. It is the main focus.
Larger companies lose the attention to detail when providing these sideline services. Details and employee concerns slip through the cracks. Customer service, especially for a small business, is extremely important.
4.2.1 Competition and Buying Patterns
The benefits administration business is not based on industry “seasonality.” Clients’ group benefit plan years do not necessarily run on a calendar year basis. Even though it is not uncommon for the plan years to be the calendar year, the group benefit plan year can coincide with the company’s fiscal year or any 12-month span that the company deems appropriate.
The only service that EBA offers that might be considered “seasonal” is the administration of the Flexible Spending Account Plans. Since these plan limitations are governed by a section of the Internal Revenue code, the plan years are based on a calendar year. However, companies who wish to initiate this type of benefit plan do not have to wait until January of a year to be effective. They can begin the plan any month of the year, however, the renewal must be effective in January of the next year. For example, a company can initiate a Flexible Spending Plan in July of 2001, and it will be in effect through December 31, 2001. The plan must be renewed, and there must be an ‘open enrollment’ for the plan year beginning January of 2002. Subsequent years will then be a full 12 month period beginning January of each year.