Articles
< Back to Articles
Capitalizing on the Contingent Workforce - Outsourcing Benefits Programs for Non-Core Workers Improves Companies' Bottom Line
By Ms. Elizabeth M. Rice, SPHRContingent workers - such as temporary employees, project consultants, contractors, seasonal workers, freelancers, and other non-core employees - now represent 30% of the entire U.S. labor force, according to the Advisory Council of the U.S. Department of Labor. The number of contingent workers employed in the U.S. is predicted to quadruple over the next 10 years. (Advisory Council, U.S. Department of Labor)
Hiring employees on a contingent basis is emerging as an increasingly commonplace practice for today's cost-conscious companies striving to improve workplace productivity and profitability, while minimizing costs and overhead. Particularly in light of the significant budget cuts and layoffs, which have taken place over the past few years, contingent employment has become an integral part of companies' overall business strategy.
Companies that hire employees on a contingent basis enjoy the freedom and flexibility of using staff resources as needed, versus investing in employees on a permanent, full-time basis. Many employees, too, enjoy this flexibility - such as individuals with other personal or professional pursuits, those who want a bridge to a permanent job placement, or others who want to embark upon a new career path, without making a long-term commitment to the employer.
Other key business advantages of contingent employment include the ability to reduce employee overhead, increase workplace productivity, and fully leverage the use of finite resources, such as staff, office space, supplies, equipment, etc.
Employee Benefits Programs: A Fundamental Problem for the Contingent Workforce
With such a major shift in the workforce moving toward contingent employment, the need has never been greater for employers to offer competitive benefits, training, and other incentive programs to their non-core employees. Otherwise, companies risk significant productivity and profit losses resulting from contingent employees who lack the skills, motivation, or commitment to succeed. In general, companies must develop better ways to make their non-core employees feel like they are an integral, vital, and valued part of the team - not merely a dispensable staff resource.
Companies that offer benefits, such as medical, 401K, disability and life insurance, direct deposit, etc., to contingent employees have a much greater opportunity to recruit and retain the best, most highly skilled and motivated job candidates. Contingent workers value competitive benefits programs as one of the biggest incentives for accepting a position.
Consequently, the majority of companies today don't provide competitive benefits programs to their contingent employees. The Department of Labor Advisory Council reports that less than 18% of part-time workers have employer-provided health or retirement benefits, less than 8% of temporary workers have such benefits, and no independent contractors receive these benefits.
This is largely due to the rising costs of medical and other insurances, coupled with the high costs, overhead, and risks of administering benefits for non-core employees. The time, costs and risks involved with managing benefits for non-core workers is much greater than for permanent employees because of the temporary nature of these types of employment arrangements.
Every business's mission is finding the best ways to reduce costs, increase productivity, and stay competitive. Short-term, companies will save money by choosing to not provide their contingent staff with a competitive benefits program. But, long term, this can have seriously negative implications on the bottom line in terms of lost workplace productivity and morale, staffing of unskilled or untrained contingent employees, and increased turnover rates.
A survey of 206 mid to large companies, by William M. Mercer, Inc., found that in businesses with a low turnover, 40% of respondents cited workplace satisfaction and healthy interpersonal relationships with their managers and peers as two primary reasons for staying on their current job. According to The Harvard Business Review, reducing employee turnover rates by just 5% reduces operational costs by 10% and improves productivity by a significant 65%.
Benefits Outsourcing - Solution to Providing Better Benefits to Contingent Workers
Outsourcing the HR and benefits administrative processes to a specialist is enabling more companies today to offer a competitive benefits package to their contingent staff, and as a result, better capitalize on their contingent staff resources.
A payroll and HR administrative service provider acts as the client company's employer of record for their contingent workforce. It does not recruit or hire new employees, but rather assumes responsibility and liability for administering employees' payroll and benefits, including: payroll and tax processing; employee benefits administration; security clearances and background checks; and the management of unemployment and worker's compensation. This is the ideal outsourcing model for companies that do want a specialized, tailored HR administrative service package, but still want to maintain the recruitment and hiring process of new employees in-house.
A payroll, benefits and HR administrative specialist should offer the following types and level of services:
- Benefits administration - management of medical, dental, vision, disability, and life insurance, COBRA, 401K, and other employee benefits plans.
- Risk management - employee safety training, site evaluations, employee safety and injury reports, claims management, applicant screenings, and drug testing.
- Payroll administration - administration of employees' payroll, W2s, and taxes
- Security clearance processing - conduct of secret level, DoD and DoE security clearances.
According to Gartner Group, payroll and benefits administration is now the biggest revenue driver for the HR outsourcing industry, which is predicted to become a $46 billion industry by year-end 2003. In fact, by 2004, the HR outsourcing market will reach $51 billion, representing 39 percent of all business process outsourcing (BPO) revenue.
Bottom-Line Advantages of Employee Benefits Outsourcing
Other key advantages of outsourcing the benefits programs for contingent staff include:
Time and cost reductions: Outsourcing payroll and benefits administration significantly reduces the time, costs and back-office overhead involved with administering contingent employees' benefits and payroll in-house. This gives businesses the freedom to focus solely on the core, strategic areas of their business.
- Risk reduction: Outsourcing payroll and benefits can significantly lower a company's risk and liability of handling these functions in-house - such as worker's compensation and general liability claims.
- Expanded benefits for employees: By outsourcing the payroll and benefits administration functions, businesses can offer their contingent workers better and more extensive benefits than otherwise possible. This gives them more leverage for recruiting and retaining the most qualified and skilled employees for the job.
Companies should follow these practical guidelines to fully leverage the advantages and cost savings of outsourcing payroll and HR administrative services for contingent employees:
- Establish your goals and expectations of the benefits and HR outsourcing provider, and gather as much information as possible from the service provider to ensure that they will be able to accommodate your needs. One way to accomplish this is by issuing a request for proposal (RFP) to a few different HR and benefits service providers. The RFP is a formal document issued to the service provider, specifically outlining your requirements.
- Determine the different types and level of benefits that you want to offer contingent employees. This includes medical and dental insurance, vision care, 401(k), holiday(s), vacation, and sick days. By offering competitive benefits, you will attract talent to your short and long-term projects and ensure employees' commitment through the project.
- Estimate the time, resources, and expense that would be required of your team internally to administer the same HR services that you are planning to outsource. Compare the savings and benefits to determine whether or not it will be advantageous to outsource these functions to a specialist.
- Keep the lines of communication open with your HR and benefits administrative service provider. First, choose a company with the capability and resources to provide your company with the special attention and high level of customer care that you need to achieve your business goals. Then, continue to communicate with the service provider on a regular basis to ensure that your needs are being met.
- Look for a specialist that: (1) has a solid industry track record, (2) offers a comprehensive, diverse level of HR and benefits administrative services, and (3) provides tailored HR and benefits administrative service packages, so that the company pays only for the services needed. This type of service provider will be much more likely able to accommodate your company's specific HR and benefits administrative needs.
About the author: Ms. Elizabeth Rice is the executive vice president of Innovative Employee Solutions® - a San Diego-based company specializing in payroll and HR administrative services for the contingent, non-core workforce. Ms. Rice has more than 20 years of experience in HR and executive management and is noted both regionally and nationally for her particular expertise in employee relations, women's workforce issues, and temporary employment. Ms. Rice can be contacted at erice@innovative-es.com
BBB Online
BBBOnline Reliability Program.