HR Spend Optimization

Transcription

1 HR Spend Optimization How to Eliminate Unnecessary HR Expense and Return Money to the Business A CheckPoint HR White Paper The Point of Difference in Human Resources

2 Executive Summary Employee related costs continue to climb. Everywhere, organizations are looking for ways to minimize the impact of double-digit premium increases and more effectively deal with the heightened complexity of HR compliance and administration. The problem is particularly acute for small to mid-sized companies. A study done by Price Waterhouse Coopers (PWC) found that these companies spend on average $2,000 per employee per year to handle payroll, workforce administration, time & attendance, and health & welfare. In contrast, larger companies only spend $1,400 per employee to accomplish the same things. The extra $600 per year spent by smaller organizations quickly adds up. You might call it the smaller company penalty if they could tap into the economies of scale available to larger companies, some of this money could be returned to the business. But even then, there are other HR expenses that are being incurred needlessly. While some costs are unavoidable, top executives are often surprised to find out how much of the HR budget is spent unnecessarily. No company sets out to waste HR dollars, but, without realizing it, most end up doing exactly that. PWC found that hidden costs account for over 50% of the cost of administering HR programs. At CheckPoint HR, we ve worked with hundreds of small to medium-sized companies, and have seen similar excessive costs. By finding and eliminating these unneeded expenses, HR can return money to the business. This white paper identifies the keys for doing so. It is vitally important to note that we are not advocating a reduction in benefit plan quality, shifting excessive costs over to employees, or eliminating HR programs. In fact, when our recommendations are adopted, companies are often able to broaden plan options and increase employee satisfaction. How is it possible to find money in HR and increase employee satisfaction at the same time? It all begins with a small but crucial shift in mindset. The Silo Surcharge HR silos are the root cause of unneeded expense. The subtle but vitally important change in mindset is to eliminate silo thinking. Figure 1: HR Silos

3 Figure 1 shows some of the typical HR silos. Past thinking was that the best way to manage HR Spend was to optimize each individual program in the different silos. But today perceptive managers are challenging that thinking and they are getting better results. There may be good historical reasons for the existence of HR silos, but if we were designing a HR strategy from the ground up, we would not have them. Whenever you have silos, there are inherent inefficiencies. Opportunities for synergies are missed. The result is the Silo Surcharge extra money paid by the company unnecessarily. There are 3 kinds of wasted HR spend: Hidden costs. These are costs that are not transparent, because they are bundled into the price paid for a product or service. Examples are brokers commissions and 401k asset management fees. Errors, omissions, & avoidable costs. Many costs fall into this category. Some are the direct result of having duplicated data and processes that span multiple silos. Just one example is overpaying insurance premiums due to errors in deductions, synchronization between systems, and setup issues. Opportunity costs. Some opportunity costs translate into hard dollars such as missing out on available tax credits because HR doesn t have the bandwidth or expertise to put tax-advantaged programs into place. Other costs are soft dollars but still very real springing from the time that HR professionals have to devote to researching issues, answering questions, and tracking down errors that arise when HR systems are in silos. There is a Silo Surcharge, but companies don t recognize that they are paying it. These unnecessary costs go undetected for months or years, because they are part of the business-as-usual approach to HR Spend. To find wasted money and return it to the business, we need a simple yet powerful change in mindset. The HR Cost Continuum We need to stop dealing with silos, and we need an Figure 2: HR Spend Optimization Platform

4 approach for addressing the HR Cost Continuum. The HR Cost Continuum comprises all the direct and indirect costs for systems and services that do recruiting, onboarding, provide benefit plans, administer benefits, perform payroll, provide and manage HR technology, ensure compliance, and handle retirements, resignations, and terminations. The perspective of the HR Cost Continuum is the employee lifecycle, not individual HR silos. The first step toward eliminating unneeded expense happens when we recognize that virtually all of the silos need the same data, and that efficiencies can be gained by breaking down the walls that kept the silos apart. But we also need expertise and tools to succeed in eliminating the silos. HR Spend Optimization Platform To most effectively manage the budget across the HR Cost Continuum, a HR Spend Optimization Platform (HR/SOP) is needed. A HR/SOP is a new resource for HR executives, because it is the only platform that addresses HR spend in a way that eliminates the Silo Surcharge. A HR/SOP is a combination of services and technology designed to eliminate all of the duplicate, unnecessary, and wasted expenses. The important thing to notice about the HR/SOP is that its focus is not on silos, but on the full HR Cost Continuum. It is not just another HR benefit plan, third party administrator, or HRMS software which themselves tend to operate in silos. There are three levels of expertise packaged into a HR/ SOP: Expertise. This is strategic help in designing, acquiring, and implementing HR programs that maximize the value of every HR dollar spent. To deliver this, the HR/SOP has to include deep subject matter expertise across the full gamut of HR-related costs, such as medical plans, retirement, tax-advantaged programs, benefit marketplaces, and payroll tax strategies just to name a few. In addition, the HR/SOP must deliver full cost transparency, with no hidden costs bundled in. Services. This is operational-level expertise that HR management leverages to handle day-to-day operations, ensure that unnecessary expenses do not happen, and that special processing situations such as COBRA and compliance requirements are fully covered. This typically involves a team of servicers whose efforts are coordinated and managed through the HR/SOP. Technology. This is a new kind of HR software, accessed in the Cloud and focused on management of HR costs across the entire continuum. This software contains specific capabilities that reduce cost through employee self-service, and it supports standard HR processes and reporting at less cost than systems that operate in silos. With a HR/SOP, the enterprise has a global view of HR Spend and the expertise to manage it. All three of the above components are required, or else you don t really get a full HR/SOP, and opportunities to maximize cost savings are lost because the HR group will need to coordinate the remaining silos in an in-house effort. One big difference between a HR/SOP and other approaches is that the HR department does not need to spend time orchestrating different HR programs and services because program operation is built into the platform. HR s focus is elevated to the strategy level while maintaining full review and control of daily operations. Further white papers in our Optimizing HR Spend Series dig deeper into each of these areas of expertise, explaining how the HR/SOP enables enterprises to find and eliminate needless HR costs while improving employee satisfaction

5 Figure 3: Returning Expense to the Organization Conclusion There is a long tradition of managing HR Spend in silos. That tradition may have been unavoidable in the past, but for companies with 50 to 500 employees, it is now costing serious money. This is money the company could otherwise use to be more profitable and have more investment choices. that implement a HR/SOP return the most money to their businesses. HR Spend Optimization Platforms are the next generation in HR cost management. They combine services and advanced technology to maximize the value of a company s HR investment across the spectrum of the HR Cost Continuum. Figure 3 can be used to determine where your company stands in its ability to return unnecessary HR Spend to the business. On the vertical axis we have the company s approach to HR cost control: is it a silo mentality or is the focus on the HR Cost Continuum? The horizontal axis depicts the various methods and tools used, from doing everything in-house to employing a modern HR Spend Optimization Platform. Not surprisingly, the companies that waste the most money are those who have a silo approach and do things in-house. Companies that use outside services do better but there are still gaps. This was confirmed by the PWC study already cited, which found that enterprises could save from 18% to 32% by consolidating certain administrative services. Those