Can HR outsourcing help companies endure the recession?

When The Going Gets Tough, The Tough Call For Help

By Livia Gershon
Worcester Business Journal

“I’m so excited about this year. It’s great.”

That’s a sentiment you won’t hear from many company presidents these days. But Ultan Feighery is in an unusual position. He’s the president and founder of The Human Resources Organization in Westborough, a human resources outsourcing company. And he says HRO has seen a 25 percent jump in new business in the first two months of 2009.

To Feighery, it makes sense that companies facing shortfalls would bring HR functions to an outside vendor to save money. But others in the field say it’s far from clear that business leaders want to take the jump into outsourced HR at a time when so much else is uncertain.

Cafeteria Options

The Human Resources Organization, which Feighery founded seven years ago, offers employers a variety of services to choose from. It can manage 401(k) plans, run payroll and offer on-site or on-call support. It also acts as an insurance agent, looking for good deals for clients without being commission-driven like traditional agents. Feighery said the company can help clients not just by replacing permanent HR staff but by figuring out better ways to deliver benefits.

“In 95 percent of cases we can find significant savings,” he said.

Bob Eubank, executive director of the NorthEast Human Resources Association, said there’s no doubt HR outsourcing has established itself as a viable industry over the past decade. But he said it’s not clear whether it’s become more or less prevalent since the economy went into decline. Sometimes the outsourcing possibility costs more initially for longer-term savings, and that may not be an attractive option right now,” he said.

Sandra L. Reynolds, executive vice president of The Employer’s Resource Group at the Associated Industries of Massachusetts, said she’s heard of increases in outsourcing only among businesses that feel they need to reduce their own staff. "We’re just starting to hear about companies that are kind of facing the realities that they either might or will have to do that,” she said.

Next Best Option

Reynolds said her group, which offers its own HR products, has definitely seen an increase in the use of its hotline. “When you have fewer internal resources you use external resources at a higher level,” she said. Mike S. Lanava, business resource manager at the Worcester Regional Chamber of Commerce, said he hasn’t noticed HR staffers being replaced by outsourcing in recent months. “I haven’t been so much aware that there have been layoffs of complete departments,” he said. Still, he said he does think the long-term trend is moving toward greater use of external HR resources.

Largely because government compliance rules are becoming more complicated, Lanava said, many companies are going to HR specialists for particular needs. The companies may help them develop a sexual harassment policy and provide training videos, write up a maternity leave plan or offer customized safety training.

While some law firms and a handful of large, national companies always provided those sorts of services, Lanava said, more small players have been emerging to offer them in recent years. “What I’m seeing is more smaller local things that are tailoring their packages to the local companies,” he said.

Still, there can be a backlash against the outsourcing of HR, especially if it’s not done well. Reynolds said some large companies that once outsourced HR functions are bringing them back in-house these days. “Some of them are finding that it solves some problems but it also creates some problems,” she said. Eubank said one big problem can come if employees don’t have a particular person they can go to with job-related issues. For that reason, he said, many companies use a mix of in-house and outsourced resources.

That’s just fine with Feighery. He said his company makes sure to let potential clients send them as large or as small a chunk of their HR operation as they want. After they try the company out, he said, they often decide they want to add more services.“Last year, 85 percent of our clients added more than 30 percent to the products that they bought,” he said. “You put your toe in the water.”

From the Editor.

The story never changes. When times are good, business owners seem to think that little is broken within their organization or operations. When times become challenging and budgets tighten, many managers and executives look for innovative ways of cutting costs without sacrificing service or quality.

Send us your HR outsourcing success stories to hrsolutions@employers-Rx.com or contact us directly at (877) PEO-CURE or (877) 736-2873.

Use of Health Savings Accounts up 35 Percent; Critics See Them as Tax Shelter

The number of Americans with insurance plans tied to health savings accounts has passed the 6 million mark, according to America's Health Insurance Plans. HSAs are tax-favored, individually owned savings accounts that can be used to pay for medical expenses in conjunction with a high-deductible insurance plan. About 6.1 million Americans were covered through HSA plans in January 2008, up 35 percent over the same period a year earlier, according to AHIP, a trade association representing insurers. The plans have been in existence since January 2004.

About 30 percent of individuals covered by HSA plans worked for small businesses, 45 percent worked for large employers, and 25 percent bought insurance in the individual market. The small-group market is the fastest-growing segment for HSAs. The AHIP survey found that HSAs are helping more Americans afford health insurance. HSA plans accounted for 31 percent of new coverage in the small-group market over the past year, and 27 percent of new coverage in the individual market.

The average deductible for the best-selling HSA plans in the small-group market was $2,244 for single coverage and $4,356 for family coverage, according to AHIP.

Average annual out-of-pocket limits were $3,462 for single coverage and $6,690 for family coverage.

Premiums averaged $3,189 for single coverage and $8,125 for family coverage.

"The increasing popularity of HSAs is a result of managed care's failure," said John Goodman, president of the National Center for Policy Analysis, a Dallas-based public policy research organization. "The best way to control health care costs is to put patients in control of more of their health care dollars."

Critics of HSAs, however, pointed to another study. The Government Accountability Office found that taxpayers with HSAs in 2005 were, on average, more than twice as wealthy as other taxpayers. Contributions to HSAs were more than twice as high as withdrawals. "HSAs clearly are attractive to higher-income people who are looking for tax shelters," said Rep. Henry Waxman (D-Calif.). "But they aren't the answer for providing adequate health insurance coverage for the average American. This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs."

The House recently passed legislation that would require HSA trustees to substantiate that withdrawals from the accounts were used for allowable medical expenses. Republicans who opposed this provision said it was designed to undermine HSAs by adding unnecessary administrative burdens. "Democrats should stop trying to dismantle this coverage option," said Rep. Charles Boustany (R-La.). "These accounts help cover the uninsured and lower health costs with preventive care, lower-cost medicines and fewer visits to emergency rooms."

The HSA studies are available at www.ahipresearch.org and www.gao.gov.

Organizations Ripe for HR Outsourcing as They Seek Standardization, Ability to Focus on Business Issues

Hewitt Survey Finds Companies that Outsource HR are Realizing Benefits

Organizations are primed for human resources (HR) outsourcing as they look to standardize HR processes and focus on business issues, according to a new survey by Hewitt Associates, a global human resources services company. Hewitt’s research shows that companies that have already outsourced HR activities are satisfied with their outsourcing arrangement and are realizing the benefits they hoped to gain.

The survey of nearly 100 large U.S. companies representing 2 million employees finds that the top three pressures facing HR executives today are attracting, retaining and growing talent (67 percent), being able to better support the business by focusing HR on core capabilities (47 percent) and supporting business changes (41 percent). Talent issues and a focus on strategic capabilities continue to be priorities for the next two years.

In a likely effort to make HR more efficient and freed up to tackle the top issues facing HR executives, 91 percent of companies surveyed have undertaken steps within the last two years to improve the internal HR function, such as HR process re-engineering or standardization. In fact, nearly six out of 10 companies surveyed believe HR processes and policies must be standardized before implementing outsourcing activities.

“Companies are realizing that they need to standardize HR processes and policies as a first step in their HR transformation,” said Mark Oshima, director of HRO strategy at Hewitt Associates. “This is often a precursor to outsourcing, since outsourcing enables both HR and line management to focus on issues vital to the business’s strategic initiatives, instead of being burdened with HR administration.”

The Motivation to Outsource

Hewitt’s research finds that organizations consider outsourcing primarily to improve service quality (ranked 4 or higher on a scale of 1 – 6 by 74 percent of respondents). Other key drivers include access to outside expertise, the opportunity for cost savings and a desire to focus resources on core business (all ranked 4 or higher by 60 percent or more of respondents).

Of those companies that have outsourced, 65 percent surveyed reported that they are satisfied or very satisfied with their current HR outsourcing arrangement. Furthermore, 70 percent of respondents say their companies have realized the benefits they hoped to gain from HR outsourcing.

Still, barriers to HR outsourcing remain. Nearly two-thirds of respondents say there are barriers to HR outsourcing at their organizations, with the top three being concerns about losing control of key processes, concerns about employee reactions to an external service provider and difficulty building a business case.

“By and large, companies that have taken the leap and outsourced their internal HR activities are realizing the results and goals they hoped to attain,” said Oshima. “Remember, though, that outsourcing is a major commitment. Companies considering HR outsourcing should identify the business issues that outsourcing is expected to address, build a solid business case, involve key decision makers, learn from the experiences of their peers and proactively manage the change from delivering services internally to partnering with an outsourcing provider. These important steps can help make the outsourcing arrangement a successful one.”

Other key research findings:

* The majority of respondents (78 percent) prefer an HR outsourcing provider with in-depth HR consulting expertise versus a broad outsourcing provider that can provide services to multiple parts of the organization.
* Forty-four percent of respondents indicated that cost savings was not one of the primary objectives they hoped to gain by outsourcing. Among those for whom cost savings was a primary objective, nearly three-quarters (73 percent) said they had achieved their cost savings objectives.
* The majority of survey respondents include service level agreements in their HR outsourcing contracts. Data delivery and transaction accuracy are the most common standards included in agreements, each cited by more than two-thirds of companies surveyed.
* The CEO is the final decision maker when considering HR outsourcing, cited by more than half (52 percent) of respondents

http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20061206005056&newsLang=en

Onsite Triage Savings are no Accident

Convenience Store Decisions

Curtis Smith

Innovative ways to lower workers’ compensation costs with strategic sourcing.

There's a clear need for keeping workers' compensation costs down, but simply reducing benefits is not a practical answer. Human resources, safety and risk managers in the convenience store industry need to consider innovative approaches to improving employee health and safety while containing workers' compensation costs for the employer. The industry needs healthy employees in order to be productive, and people without effective health care cost employers and society more in the long run.

One viable option is "strategic sourcing." Workplace health care is a strong candidate for outsourcing because of rapidly rising costs, an increasingly complex regulatory environment and the growing need for sophisticated clinical and technical capabilities. Companies partner with providers of specialized occupational healthcare services because of their specific expertise, experience and results in delivering health care onsite and online in the workplace. Innovative, new approaches to containing workers' compensation costs are emerging from outsourced partners.

Why C-Stores Outsource Health Care

There are several reasons why convenience stores outsource health care:

* COST SAVINGS. Reducing workers' compensation costs through improved health services is a key focus. The amount of savings can vary, principally on what the costs are before the strategic outsourcer is brought in. In a hard insurance market where most companies work to limit the annual increase in their health costs, some stores actually see total incurred workers' compensation costs decrease.
* IMPROVED SYSTEMS. Outsourcing firms often achieve better results because they are focused on their core competency: delivering health care in the workplace. They have developed the proprietary systems necessary to be successful, including recruiting and training nurses and doctors who are best suited to workplace health care. These resources cost millions of dollars and take many years to develop. Outsourcing businesses can deliver them economically because the cost is spread over a vast client base.
* SHARPER FOCUS. Freeing key managers' time and efforts to focus on core competencies is a real advantage of outsourcing. For example, companies typically want HR managers hiring, training and supporting the people that are mission-critical to their business, not hiring nurses and overseeing a medical department. The same is true for safety departments, which are often also tasked with other regulatory responsibilities.
* PRODUCTIVITY. Better medical results raise stores' productivity because treating more employees onsite keeps them on the job. Taking preventive measures that support safety helps prevent injuries that could present a drain to workers' compensation costs. Should an injury or illness occur, improving case management and accommodating restrictions also helps employees return to work sooner.

While health care delivery in the convenience store industry is not new, the way it is delivered has recently taken a novel turn. Outsourcing providers have made great strides in offering a variety of innovative services, including patented software, specially trained staff and proprietary systems to deliver injury triage, drug and alcohol testing and background screening services. There are several health care outsourcing services that contribute to cost savings and improved worker safety, some of which have helped many convenience stores reduce injury claims by up to 50%.

Field Notes: UDF Turns to 24/7 Injury Reporting and Triage

When an employee is hurt at work, convenience store managers have few good options for responding. Typically, there is no one on staff at the store with medical training to provide adequate care or even to make a reliable decision about the seriousness of the injury. Sending employees to acute care clinics can incur costs that, in hindsight, were not needed. On the other hand, not sending employees may incur unacceptable risks. After hours and on weekends, emergency departments may be the only available provider—the most expensive choice. Too often owners or insurance managers do not even find out about claims until after the fact.

United Dairy Farmers (UDF) is a good example of a convenience chain using an innovative way to reduce the number of injury claims on the job. Cincinnati-based UDF operates nearly 200 stores throughout Ohio, Kentucky and Indiana. The chain combines the nostalgia of an old-fashioned ice cream parlor with all the benefits of a modern convenience store, and, in many cases, UDF stores are linked alongside full-service gas stations.

When Donna Hadley, UDF's manager of payroll and benefits, was looking for a better way to reduce on-the-job-injury costs, she turned to Medcor's 24/7 injury reporting and triage service. In this type of service, specially trained nurses are available to clients 24 hours a day. Whenever an injury occurs, employees can call a toll-free number and speak directly to a registered nurse. Using proprietary software and physician-designed algorithms, nurses determine the severity of the injury and the best course of action. Unnecessary medical care is avoided. Many cases can be resolved with simple first aid. Store managers can be rest assured that potentially serious cases are referred and never minimized. If the employer's insurance includes a preferred network, the system automatically directs employees to those providers. Translators are also available for employees who are not comfortable speaking English.

"Prior to the triage service, we had an employee injury report hotline: me. A lot of times, messages would be incomplete and I'd spend hours or even days tracking down the right details. Now, I get faxed a comprehensive report almost immediately after an injury occurs."Donna Hadley, UDF's manager of payroll and benefits.

All calls are digitally recorded, providing both deterrence and defense against fraudulent claims. Confidential reports about all incidents are sent to the employer's designated managers within minutes of the call. "Prior to the telephone triage service, many workers were using the emergency room because they didn't have a primary medical care provider, and visits to the ER for a minor injury cost as much as $800 per visit," Hadley said. "Now, the hotline nurse can direct employees to an occupational medical clinic if necessary, where a bill for treating the same injury might be closer to $80. In many cases, the self-care instruction provided by the triage nurse is sufficient, so costs can be avoided all together."

Many convenience stores find that, aside from telephone and online triage and reporting, outsourcing-more "traditional" approaches to a health care services firm can help further control costs and improve employee safety. Two such examples are drug and alcohol testing and background screening.

Drug and Alcohol Testing

Nationwide, one in 10 employees has a drug problem, and alcohol abuse rates are even higher. Drug and alcohol abuse contributes to thousands of workplace injuries and millions of dollars of related costs every year. Customer service, attendance and productivity are also affected. Drug testing is difficult to implement, especially for small worksites like convenience stores. Franchisees are challenged by complex drug laws that can vary by state, privacy regulations and concerns about the speed, cost, accuracy and liabilities of testing.

Solving these problems is worth the effort. Recent studies have shown employers that implement drug testing have reduced workplace injury rates by 51% within two years. These same employers saw an average reduction of 11% in their workers' compensation experience rating when they renew their insurance. When deciding whether to outsource drug and alcohol testing services, there are several important factors to consider. The health care outsourcing firm should offer policy review and development to fit each client; collection sites and 24/7 service anywhere in the country; all necessary forms and supplies; certified labs with GC/MC confirmation; physician medical review; new-hire, random, post-accident, and other tests; rapid and confidential results and reports over a secure Web-based system; and fast and friendly customer service representatives. Finally, the provider's legal staff should ensure all services are in compliance with the laws in each state.

Background Screening

Recruiting good employees is critical to every convenience store operation, and background checks and other new-hire screenings are vital components of this process. Effective screening also reduces turnover, prevents unnecessary training costs and improves retention and morale—all contributing to a great culture. Background screening services should include criminal history, education verification, prior employment confirmation, reference checking, motor vehicle records and credit reports. Health care outsourcing firms should also provide program review and development to ensure each franchisee has the right policy and only uses the screening services they really need and from which they can really benefit. Purchasing screening services that are not required is an unnecessary expenditure that counteracts cost-containing occupational health strategies.

Conclusion

Workplace injury management is one area where improved quality costs less, as is the case with UDF. It is in every convenience store's interest— and every employee's interest—to have a safe workplace, to use best practices in treating injuries when they do occur and to manage cases and regulatory health services effectively. While employee testing, screening and injury prevention is critical, the highest safety provisions do not always guarantee the inevitable. Using on-site and online outsourcing services through a knowledgeable and experienced health care outsource provider puts you in greater control, keeps your occupational health team focused on important issues and significantly reduces workers' compensation costs.

FL Workers Comp Rates to Drop 15.7%

South Florida Business Journal

Florida's insurance commissioner got what he wanted: Workers' compensation insurance rates are to fall by a statewide average of 15.7 percent, effective Jan. 1. Commissioner Kevin McCarty approved an amended rate filing submitted by the National Council on Compensation Insurance (NCCI).

His office estimated the overall average rate decrease of 15.7 percent will produce a savings worth more than $400 million for Florida employers. Earlier this month, McCarty asked NCCI to amend its original filing, citing disagreements with the methodology NCCI used to project losses and with the trend factors used in the filing.

Per industry group, the rate drop is to be 15.4 percent for manufacturing, 16 percent for contracting, 16.2 percent for office and clerical, 15.3 percent for goods and services and 15.7 percent for miscellaneous other industries.

The decrease is the fourth consecutive rate drop since the government reformed the state's workers' compensation system in 2003. Rates dropped 13.5 percent for 2006, 5.1 percent for 2005 and 14 percent for 2004. The cumulative overall average rate decrease for the period totals more than 40 percent, McCarty's office said.

http://www.bizjournals.com/southflorida/stories/2006/10/30/daily16.html?f=et81&hbx=e_du

Is It Time to Outsource Your HR?

By Layne Davlin

When the time comes to start hiring staff, a lot of entrepreneurs fail to give much thought to all the responsibilities that come with being an employer. The average small-business owner isn’t equipped with either the knowledge or the time to comply with the mountain of regulations required by the government. Fortunately, HR outsourcing--hiring a PEO to oversee your HR tasks--is a solution that not only provides help with compliance issues but can also provide assistance that’s tailored to your company’s specific needs.

A PEO, or Professional Employer Organization, can offer HR solutions tailored to small and midsized businesses in all industries. For an annual fee, usually 2 to 7 percent of the dollar value of your annual payroll, a PEO will take care of everything from recruiting and hiring to managing your health benefits. Since many smaller businesses can’t afford to hire an HR professional, PEOs can be a cost-conscious option. For instance, if a company has a $1 million payroll, a PEO can provide the equivalent of a full HR department for roughly $20,000 to $70,000 a year, considerably less than a fully staffed HR department or even one qualified executive.

Generally, a PEO will legally hire a company's current employees, thereby making the PEO the "employer of record" for taxation and insurance purposes. Having the employees of multiple businesses “on staff” allows PEOs to enjoy lower benefits’ costs because more employees mean better rates. The employees are then leased back to the original employer (now a PEO client) under a shared-employment contractual relationship, which sets out the powers, responsibilities and liabilities of the parties. This practice is also known as “employee leasing” or “staff leasing".

The PEO then assumes responsibility for all payroll obligations, workers’ compensation coverage and tax filings. Additionally, health, welfare and retirement benefits can be contracted as well as all associated administrative work. Because they take over most of the headaches of being an employer, PEOs are ideal for small businesses. In fact, most PEOs target companies that have 150 employees or less.

Many times, a PEO arrangement is the only way a small business can offer benefits like health insurance, dental and vision care, life insurance, retirement saving plans like 401(k)s, Section 125 cafeteria plans (flexible spending accounts for healthcare and childcare), job counseling, adoption assistance and educational benefits. Most small businesses just couldn’t afford or manage these benefits on their own.

Finding the Right PEO for Your Company

Ideally, a PEO will relieve its client companies of the time-consuming and money-draining burdens associated with HR. Because PEOs offer many different types of services, choosing the right PEO is essential. If you’re thinking about hiring a PEO for your business, consider the following factors to find the best possible PEO arrangement to meet your needs:

• Conduct a basic needs analysis. Lay out exactly what type of HR and risk management concerns your company has.
• Review the services of all the PEO firms you’re considering. Find out which firms can meet all your needs and will do so in a manner that meets--if not exceeds--your expectations.
• Perform extensive background research to find out if the PEOs’ sales pitches are really what they deliver.
• Check out the companies' staff. Does it have the depth and expertise to deliver on its promises?
• Find out how the firms deliver their services. In person? By phone? Via the web? A mix of all three?
• Determine what kind of consulting the PEOs provide on strategic HR issues like recruiting, HR procedures and processes.
• Ask for a few references, and then check them. If a particular PEO can’t relieve your HR burden, one of the other ones certainly can.
• Find out if the PEOs charge any upfront fees and how those fees are determined. What about pre-payments? Do you have to put up a deposit?
• Ask for some demonstration that payroll taxes and insurance premiums are being paid properly, and that any past clients’ legal issues have been correctly and efficiently handled.
• Once you’ve selected the PEO you’ll be hiring, lay the foundation for a lasting relationship with your PEO by meeting the people you’ll be working with face to face. An open line of friendly communication ensures you won’t be lost in the in-box.

The bottom line is, PEOs can help small and midsized employers enjoy the same HR benefits as large companies without the considerable overhead. A PEO costs less than hiring an internal HR employee and will maintain critical employment records and payroll reports, as well as provide the forms needed to make sure you’re in compliance with all required employee regulations. Being an entrepreneur is difficult enough without all the accompanying HR hassles, so find a PEO for your company today.

Copyright © 2006 Entrepreneur.com, Inc.

Chatsworth, Calif. CEO and Wife Arrested for Alleged Workers'

Insurance Journal Online

Three suspects in connection with a workers' compensation premium fraud investigation conducted by the California Department of Insurance (CDI), Fraud Division have been arrested.

A felony complaint was issued by the Los Angeles County District Attorney's Office charging Gad Leshem, 59, with four counts of premium fraud and one count of conspiracy. A felony complaint was also filed against Zeev Golan, 54, and Irit Golan, 52, charging both with four counts each of premium fraud and one count of conspiracy. Bail for each of the defendants has been set at $6.5 million dollars. If convicted, each of the defendants could be sentenced to a $50,000 fine or double the amount of the fraud and up to five years in state prison.

Gad Leshem is the president/CEO of Cover-All Inc., a flooring and carpet installation company headquartered in Chatsworth, Calif. Zeev Golan is the vice president and his wife, Irit Golan is employed as the executive secretary and payroll supervisor.

According to CDI, Cover-All obtained a workers' compensation policy State Compensation Insurance Fund (SCIF) on Sept. 1, 2001. SCIF conducts routine audits of policy holders as part of its normal procedures. The audits revealed that the payroll reported to SCIF was significantly lower than that reported to the Employment Development Department (EDD). As a result, SCIF referred the case to the CDI Fraud Division.

During the course of the investigation, it was learned that Zeev and Irit Golan were responsible for preparing the alleged fraudulent monthly payroll reports provided to SCIF. The monthly payroll reports were reviewed and approved by President Gad Leshem. Leshem and Zeev Golan also provided the alleged fraudulent payroll documents that were provided to SCIF during the routine audits. The investigation conducted by the CDI, Fraud Division determined that from Sept. 1, 2001 to April 16, 2005, Cover-All. underreported payroll of $26,937,575 to SCIF. This underreported payroll resulted in a premium loss of $7,565,009, CDI said. SCIF also assisted in the investigation.

http://www.insurancejournal.com/news/west/2006/10/24/73513.htm