As one of the largest line items on the P&L these days, employee benefit discussions in many organizations have transitioned from the breakroom to the boardroom, with increased scrutiny from several in the C-Suite and beyond.
If your organization's finance department isn't already deeply involved in the discussion, it's time for them to engage.
Going into these meetings with little employee benefits experience can seem overwhelming, but it's important for your finance team to be involved and in alignment with human resources. There are several reasons it's worth your while to take a more active role in the process.
1. Employee benefits are consuming a larger portion of your company's budget
Healthcare is a crucial part of any company’s employee benefits package. In order to recruit and retain the best and brightest employees, your healthcare offerings need to be competitive, yet not excessive. Annual year-over-year increases in the cost of healthcare, no doubt outpacing your revenue and profit growth, have made this extremely challenging.
As the leader of the finance team, you can't afford to ignore an expense that big, and often times that out-of-control. You need to understand what's driving these increases, be they external factors, internal factors, or both. Understanding what's controllable and what's not can also help bring focus to an already complex conversation.
If you’ve never been previously involved in a deep discussion regarding benefit costs, it should be enlightening, and you'll be relieved to learn that there are many tools at your disposal for managing cost which go far beyond just gutting the benefits plans and/or pushing more of the cost burden onto your employees.
As frustrating as benefit cost increases are for you, they’re equally frustrating for employees, many of whom have faced stagnant wage growth while the cost of employee benefits (not to mention the cost of housing and education) has ballooned. The stress this causes to your workforce can often times impact worker health and productivity, which also impacts your bottom line.
2. You're uniquely qualified to speak the language of finance to your benefits broker
The field of employee benefits technically straddles both the financial services and human resources industries. With issues to tackle as complex as risk mitigation strategies, claims reserves, and budget-based benefit design, providing too much autonomy to your HR department may prove to be detrimental to your short and long term financial plans.
After all, you're in a unique position to explain exactly what your company's financial objectives are, as well as your risk tolerance, and how these may impact your healthcare spending decisions. Depending on what role they have on the executive staff, and the exposure they have to financial information, HR personnel can’t be fully expected to understand the financial limitations of the company.
3. You (and your COO) probably recognize the value of productivity better than anyone else at the company
As counter-intuitive as it may seem, designing a benefits plan which promotes healthcare utilization across a wider pool of your workforce can actually save you money. Lost time at work inevitably results in lost productivity.
Are your benefits plan (and time off policies) designed to maximize preventative care utilization, as well as age appropriate screenings, immunizations, prescription drug adherence, and minor (but necessary) medical procedures? Or has your benefits plan and time off policies been inadvertently designed to actually dis-incentivize people to seek these types of medical care? (As just one example, the way you structure your HSA versus a use-it-or-lose-it HRA sometimes has a lot to do with this. Value-based insurance design is also another arrow in your quiver.)
Such shortsightedness when it comes to plan design is precisely how preventable illnesses become far more costly and how the failure to capitalize on early detection of health issues balloon into something far more catastrophic for both your employees and your bottomline.
Healthy employees who regularly visit the doctor tend to be more productive employees. They’re not distracted by pain or illness, their minds are able to function with better clarity, and they can focus on the task at hand. Their access to decent medical care means they’re healthier, they take fewer sick days, and they’re less mentally taxed as a result. So while it's sometimes easy to view healthcare spending purely as a cost, it's worthwhile to look at it as an investment in worker productivity, not to mention risk avoidance.
4. You'll come to appreciate the hidden costs of a sub-par employee benefits package
Companies who skimp on benefits often times don't bother to understand the hidden costs of of a sub-par employee benefits program. While we've already discussed the hidden costs of lost worker productivity, employee turn-over, coupled with the challenges in recruiting talent also carry real costs to your company.
The true cost of employee turnover is very hard to quantify as it isn't exactly something that appears explicitly on a balance sheet. A recent SHRM study tagged the price of replacing a salaried employee at an average cost of 6 to 9 months’ salary. For a manager making $50,000 a year, that's $25,000 to $37,500 in recruiting and training expenses. Others place the cost at even more, suggesting that losing a salaried or executive-level employee could cost nearly twice their annual salary. A CAP study found the average cost to replace an employee is 16 percent of annual salary for a high-turnover, low-paying jobs (earning under $30,000 a year), 20 percent of annual salary for midrange positions, and 213 percent of annual salary for highly educated executive positions.
Many employers are surprised to learn that employees aren't just looking for a competitive salary. In fact, according to a survey by Glassdoor, 4 out of 5 employees would rather see an improvement to their employee benefits package than an increase in their salary. Net, if you want the best and the brightest in your industry to come to work for you and stay, you need to offer them a competitive employee benefits package.
5. You'll be in a better position to assess the ROI of your employee benefits program
According to a survey of CFOs by the Integrated Benefits Institute (IBI), a San Francisco-based nonprofit research and educational organization, only 6 percent of CFOs reported that their companies assess the ROI of their health programs.
Nevertheless, it's virtually impossible to get a handle on your return on investment if you aren't actively engaged in the benefit planning process. First and foremost, if you are planning to measure ROI, those constructing the plan need to know by what metrics the plan will be deemed successful. Putting together a plan to achieve retention and recruitment objectives can sometimes be quite different than a plan put together to promote engagement, wellness and worker productivity.
Keep in mind that an employee benefits plan goes far beyond just medical insurance. While we tend to primarily think of medical, dental, vision, disability and life insurance as the "core" components of a benefits plan, other factors such as your compensation structure, retirement savings vehicles, PTO policy, training and mentorship, onsite convenience services, and so much more make up your entire benefits package.
Every expense in your budget ideally plays a part in supporting your company's mission. Your employee benefits expenditures should be no exception.
6. Your HR team may not be empowered to make decisions regarding alternative funding mechanisms
Funding mechanisms for employee benefits programs have dramatically altered the employee benefits landscape. Self-funding once relegated to only the largest of companies, is now obtainable and appropriate for many small businesses.
Add to that Level Funded health plans , as well as MEWAs and AHPs, and there now exists a plethora of funding and pooling arrangements designed to bring down costs, manage risk and even recoup upside value.
With all that being said, with some of these options, you’re opening yourself up to greater degrees of expense variability. Take self-funding; in a low claims’ year, you’ll save money — but in a high claims’ year, you'll have to be prepared to absorb any overruns in healthcare expenses. Is your company financially disciplined to handle this? Net, while employers are drawn to self-funding because of the promise it holds to curtail costs, the freedom it lends to customizing plans, and unburdening of strict regulation, it’s a complex decision that requires strict financial oversight and empowerment to make these decisions.
In Closing
Your company's HR team might be quite excellent at what they do, but they may not be in the best position to make such complex and far-reaching financial decisions for your company. So if your HR Director is the primary liaison between your company and your employee benefits broker, it might behoove you to become another point of contact within the organization. This will help ensure alignment between your HR and Finance teams which often times can yield a strategic advantage for your company.
What questions do you have about CFO engagement in the employee benefits selection process? Contact us or comment below. We’d love to hear from you!