The term “buying power” is often used in the investment world. But buying power in the HR outsourcing world is a real thing too and helps employers save on benefit costs. It can make all the difference in the type of benefits businesses are able to buy and provide for their employees.
Let’s back up.
If you’re the owner of a small or mid-sized business, finding, providing, and paying for employee benefits like healthcare plans, retirement plans, and other perks like gym memberships can be a significant challenge. Ideally, the benefits you provide will:
- Help your employees balance work responsibilities with lifestyle needs
- Build and nurture team morale
- Be competitive enough to help your business attract new talent
At minimum, though, benefits have to be compliant with federal, state, and local laws. And they need to be affordable.
When you take on the responsibility of employee benefits yourself, you have to do the upfront legwork of finding and comparing plans. You have to select the right plans that reflect your company culture and then manage and administer those plans. And you also have to make sure that you can cover the costs per employee. Benefits can add 30-40% to the base pay of most employees, making it a substantial investment.
But when you use an HR outsourcing partner to manage benefits for you, the picture changes. An HR partner not only handles the day-to-day administrative process, they can also help you save on benefits costs through buying power—which is the ability of your partner to get group rates and/or buy in bulk and then pass the savings down to you.
Here’s the difference between what you get when you manage benefits in-house vs. when you outsource it to a trusted HR partner.
Managing benefits in-house: time-consuming details, expensive options
If you’re handling benefits in-house—whether you’re the one doing it or have HR staff—your business is entirely responsible for the outcomes. You’re responsible for staying compliant with laws such as the Employment Retirement Income Security Act (ERISA) and others. You take on the risk if any mistakes are made. There’s also an upfront hurdle in choosing the right benefits in the first place. Someone on your team has to put in the time necessary to research, compare, and make sense of all the many benefits plans, providers, and options, not to mention manage all the associated details and tasks once a selection is made.
Adding to the challenge, if you have a small or mid-sized business, you could also be paying exorbitant amounts for your benefits package. As the cost of healthcare continues to rise, for example, small and mid-sized businesses have had to face higher health insurance premiums, which limits other types of benefits they can offer their employees. Though many businesses choose not to cover the full cost themselves and require some level of employee contribution, the price tag at the end of the day can still be significant, especially when some states mandate that certain healthcare benefits be provided.
There are other costs to consider. You could be spending money on unnecessary benefits, such as life insurance if you have a workforce that’s mostly young and single. And if there are mistakes in paperwork or if you knowingly or unknowingly cover employees who don’t actually qualify for your plan, you could end up forking over more money in investigations and penalties.
All told, the risks and costs of benefits may not seem worth it. But not taking on the risks and costs leaves you in a bind, too, since you know that offering some level of benefits is both required by law and necessary to remain competitive.
Outsourcing benefits: reduced administrative burden, better prices
When you outsource benefits and other HR functions to a partner, one of the most obvious benefits is a reduction in your administrative burden. It’s the job of an HR partner to manage and administer employee benefits by taking the paperwork off your plate and handling it on their end with a team of experts and specialized technologies. Many HR partners also do the upfront work of researching and comparing plans, and helping you understand and determine which benefits make the most sense for your company culture while also covering what’s generally expected in the market. They can also advise you on how to stay compliant and avoid costly mistakes.
Because you and your staff can reduce the time spent on paperwork and navigating the laws, you gain more time to spend on high-value, strategic work that helps move your business in the right direction. Maybe for your HR staff this means focusing more time on developing the skills of existing employees to adapt to a new market demand. For you, as a business owner, it could mean figuring out how to be more innovative or come up with new customer solutions.
Saving time means saving money, but there are also direct financial gains to be made when you use an HR partner to help with benefits. Here’s where buying power comes in. Some HR partners can offer health insurance services that help you get group (or discounted) rates from insurance carriers. And if you choose an HR outsourcing partner like a PEO (Professional Employer Organization), their business model allows them to buy benefits in bulk that saves you additional costs. They can even provide benefits directly to you so that your business is covered under their master policy, which means they assume much of the risks and compliance responsibilities involved with benefits.
Whether you’re saving time or dollars, outsourcing benefits to an HR partner makes good business sense. And when you add in the buying power that some HR partners have, you can save significantly while also ensuring that you’re taking good care of your employees.
To learn more about the benefits of outsourcing HR, download the guide.