5 Problems With Handling Benefits and Payroll Separately
While benefits administration is an obvious part of HR management, payroll tends to be treated as a separate or isolated function. However, payroll is similar to benefits administration in that it is intricately linked to HR. Because benefits administration and payroll are connected to HR, and considering that each process is highly detailed, it’s best to integrate both functions into one system.
Core Components of Benefits Administration and Payroll
-Benefits administration includes overseeing policies related to:
- Medical, dental and life insurance
- Retirement plan
- Disability insurance
- Workers’ compensation
- Employee assistance programs
- Wellness and population management, and more
Laws pertaining to benefits administration include Section 125 of the Internal Revenue Code, Employee Retirement Income Security Act (ERISA), Consolidated Omnibus Budget Reconciliation Act (COBRA), Americans with Disabilities Act (ADA), and Family Medical Leave Act (FMLA).
- Compensating employees
- Involuntary withholding, such as for taxes and wage garnishment
- Voluntary deductions, such as for employee benefits
- Payroll deposits
- Employment tax filing
- W-2 processing
The laws impacting payroll are numerous and its processes are regulated on a federal, state and local level.
5 Potential Costs of not Integrating Benefits Administration and Payroll
- Managing regulatory matters relevant to benefits administration and payroll manually or via separate computer programs increases the risk of noncompliance or errors. The cost of noncompliance depends on the violation. For example, violations of ERISA can result in civil penalties (such as fines) and criminal punishment—which could incur both a fine and imprisonment.
- Each employee’s benefits information has to be integrated with payroll. For example, employees’ 401(k) elections and health insurance premiums must be transferred to payroll so the respective payments can be deducted. Entering this information in both the benefits administration and payroll systems increases the chance of data entry errors and inaccurate paychecks.
- During open enrollment, employees get to choose or change their benefits. They can change their benefits outside of the open enrollment period if they have a qualifying event. It’s time consuming and potentially frustrating for the HR staff to manually track and record employees’ benefits elections and changes. Conducting these operations manually lengthens the time it takes for updated information to reach payroll, again heightening the risk of erroneous paycheck deductions.
- It is a burden on employees to contact HR and payroll every time they need something related to those functions. Additionally, separating these functions decreases the response time from the HR and payroll departments and keeps employees dependent on these departments for information. Quicker access to this information can measurably improve an employee’s perception of and satisfaction with their employer.
- Manually administrating benefits and payroll or managing both functions via separate systems makes it much more difficult to track information, maintain reliable records, and make timely and sound decisions.
Integrating Both Systems
Advancements in human capital technology are allowing organizations to efficiently handle all processes related to HR. With this advancement comes the cloud-based option (also called Software as a Service, abbreviated as SaaS), which merges relevant functions into one web-based application.
Cloud HR systems are gaining significant traction among employers. According to a 2015 survey by the Information Services Group, “more than 70 percent of respondents have implemented or plan to implement HR SaaS within the next two years.” Areas of integration generally include:
- Benefits administration
- Workforce administration
- HR analytics
- Talent management
Advantages of integrating benefits administration and payroll:
- Improves regulatory compliance by making it easier to adhere to relevant laws
- Enables electronic payments and filing
- Eliminates double keying; employee data automatically flows between systems
- Simplifies and speeds up open enrollment participation and management
- Frees up HR and payroll staff time and empowers employees via self-service options
- Requires only a single log in to access both systems, rather than multiple logins
- Improves data tracking, reporting, and recordkeeping
- Enhances employee experience, employee engagement, and decision making
- Reduces IT infrastructure and maintenance costs
- Centralizes the management of benefits and payroll operations
By integrating both systems into one complete program, employers not only lower costs but also increase efficiency, productivity, and employee satisfaction – it’s a win, win, win!