What is Benefits Outsourcing

Benefits outsourcing refers to the practice of contracting with an external vendor to manage and administer some or all of a company’s employee benefits functions. With benefits outsourcing, tasks like benefits administration, enrollment, compliance, and communications are handled by the vendor rather than the company’s internal HR department. 

Benefits outsourcing allows companies to hand off day-to-day benefits tasks to experienced specialists. This enables the company’s HR team to focus on more strategic initiatives and core business functions. 

The growing importance of benefits outsourcing 

Benefits administration has grown increasingly complex over the past decade. Companies now face a myriad of regulations, reporting requirements and administrative processes. At the same time, benefits have become a key factor in attracting and retaining top talent. 

This “perfect storm” has made effective benefits administration even more challenging, yet more critical than ever before. As a result, outsourcing has become an appealing option for HR departments seeking expertise and assistance. 

Research shows that more than 50% of mid-size companies and over 40% of large corporations now outsource some or all benefits administration functions. This trend is expected to continue as benefits get more sophisticated. 

Outsourcing employee benefits functions offers many potential advantages, including: 

1. Access to expertise and improved compliance 

Managing benefits programs requires extensive expertise across employment law, healthcare regulations, retirement plans and more. As requirements grow increasingly complex, outsourcing gives companies access to specialized benefits administration professionals. 

Vendors have large teams focused exclusively on benefits administration across many clients. This equips them with proficiency in: 

• Compliance expertise – Staying current on changing regulations across geographies to avoid penalties. 
• Technical knowledge – Managing complex benefit plan rules, billing procedures, reporting protocols and data integrations. 
• Process efficiency – Streamlining and optimizing administrative workflows. 

These specialized capabilities make outsourcing an appealing option for HR teams seeking to strengthen compliance and optimize benefits management. 

2. Cost savings 

Outsourcing can yield considerable cost savings in benefits administration: 

• Reduced overhead – No need to pay the full cost of specialized in-house benefits staff and administration systems. Shared outsourcing resources spread costs across clients. 
• Economies of scale – Vendors process high benefits volumes across clients, resulting in lower unit costs compared to handling individually. 
• Improved efficiency – Optimized workflows and specialized personnel reduce administrative hours spent per employee. 
• Lower vendor fees – Providers can negotiate reduced fees and rates based on aggregate buying power across many clients. 

These factors allow even high-cost benefits functions like claims administration and COBRA to be handled more affordably via outsourcing. 

3. Focus on core business 

Managing benefits pulls HR teams away from core strategic initiatives like talent acquisition, performance management and workforce planning. Outsourcing removes day-to-day benefits “noise,” freeing HR to focus on business priorities.  

It also ensures benefits administration consistently receives proper attention, even during periods of intensive strategic HR activity. The outsourcing vendor serves as an integrated extension of the HR department. 

4. Enhanced benefits programs and employee experience 

In addition to cost and compliance benefits, outsourcing can directly improve benefits offerings and the employee experience: 

• Breadth of offerings – Vendors often provide access to more carrier relationships and plan options than available internally. 
• Technology enablement – Leading vendors offer online enrollment, mobile access, decision support tools, and other technology often unavailable internally. 
• Expert communications – Providers construct tailored, multi-channel communications campaigns for benefits education and engagement. 
• Specialized support – Dedicated outsourcing teams provide high-touch employee support year-round via service centers. 

These enhancements make the open enrollment process smoother and benefits programs more visible and impactful for employees.