Are You Playing Hide-and-Seek with Employment Costs?

Are you aware of all the employment costs related to your business? Do you truly understand the impact of these costs on the bottom line?

You might easily say “Yes,” because it is rather easy to spot and track compensation and benefit costs. However, when it comes to hidden costs, things aren’t so simple.

The average cost of managing HR and administrative functions “in house” is $2,000 per employee, per year for mid-size businesses.  At least 20% of this cost is hard to track and manage. Employers often underestimate the real cost of processing and managing HR administration data, payroll, health and benefits, compliance, and time and attendance. Within these functions lie an array of hidden expenses pertaining to vendors, taxes, fees, premiums, technology, and internal staff time.

Let’s take a closer look at these hidden costs.

  • While many HR and payroll vendors charge a fixed price for standard processing, they also charge extra for additional services, including W-2 processing, ACA and tax reporting, wage garnishments, and issuing emergency/manual checks.
  • The true cost of paying an employee goes beyond his or her hourly wage or base salary. It also includes your portion of benefits, such as 401(k) match, paid time off, and health insurance. Even if you don’t offer benefits, you must pay taxes and insurance.
  • Insurance agents’ commissions are embedded in the respective policy’s premium, making it difficult for you to know just how much they are really charging you for the benefit. Standard commission rates vary by product (i.e. medical, life, etc.) and if you are paying above market it is driving up the premium cost.
  • Every year your workers’ compensation policy undergoes an audit. Often employee counts and job activities change throughout the year and catch-up payments are identified during the audit. You will need to check the audit bill for accuracy—and be prepared to challenge it if necessary.
  • Many employers use separate technology to administer each HR-related function, not realizing that this segregation increases administration expense due to overlapping tasks. With non-integrated systems, your people waste time keying, updating and reconciling data; allocating employee costs across multiple cost centers; and submitting reports to government agencies.

These are just a few ways that hidden costs can account for more than 20 percent of your total employment costs. So, the question is: how can you discover and manage these costs effectively?

The right HR Partner knows where to look

Organizations that outsource multiple functions to a single vendor save an average of 32% on administering these functions compared to those using multiple vendors. Research repeatedly shows that an experienced, capable and flexible HR partner can help employers improve productivity and the bottom line. The following are some best-value offerings of a full-service HR partner:

  • Bundled services, which allow for more competitive pricing. In this case, there is no additional cost for W-2 processing, ACA reporting and custom reports, as they are all part of the overall service. This pricing structure enables a transparent pricing strategy that is devoid of hidden fees.
  • Integrated system that streamlines HR processes. Efficiency is increased because all HR processes are managed within the same system or by a single vendor. For example, when an employee is terminated, the system automatically sends a COBRA notification to those handling that aspect of the termination, ensuring that this process is not skipped or delayed. Integrated software also streamlines HR and accounting processes by transferring payroll costs directly into the general ledger, importing employee hours into payroll, and sending benefits data to insurance carriers via automated file feeds.
  • With access to an in-house insurance broker, your HR partner is able to lower its commission rate, resulting in savings—which are passed along to you (the client) in the form of reduced premiums. It also acts as an insurance advisor by helping you design a benefit plan that aligns with your company’s culture and market position and by educating employees about the company’s benefit packages.
  • Simplify the accounting for employee costs. In a co-employment relationship, your HR partner fees, and the costs for insurance and taxes are billed in every payroll cycle. There are no lump sum payments. With predictable expenses, budgeting, forecasting, and cashflow management are all simplified.
  • Lastly, an HR partner with experience in managing unemployment costs can contest (and win most) of your unemployment claims while effectively handling your company’s worker’s compensation and absence claims. Proactive management of claims and getting employees to return to work as fast as possible takes expertise and discipline.

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October 5, 2017




Blog Entries Competitive Cost Uncategorized