July 2, 2013 | 3-minute read (569 words)
By Jennifer Godsey
Originally published on SharedHR.
As employee-related costs continue to rise, organizations everywhere are looking for ways to minimize the impact of health & welfare premium increases and to more effectively deal with the heightened complexity of HR compliance and administration. This problem is particularly acute for small to mid-sized companies (50-500 employees). A recent study conducted by PricewaterhouseCoopers (PwC) found that small to mid-sized companies spend an average of $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 tasks.
While some costs are unavoidable, top executives are often surprised to find out how much of the HR budget is spent unnecessarily. Obviously, no company sets out to waste HR dollars, but without realizing it, most end up doing exactly that. PwC found that “hidden” costs necessary for operating and integrating interdependent processes account for over 50% of the cost of administering HR programs. Additionally, organizations often apply separate technology and process solutions to these individual administrative functions without considering how those solutions work with each other. This fragmentation drives up administration costs through overlaps and other inefficiencies.
According to this study, HR “silos” are the root cause for these unnecessary HR expenses. The study went on to say that 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.
Hidden Costs—These are costs that 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 duplicate data and processes that span multiple silos. Some examples include 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.
HR Outsourcing (HRO) is in the business of assisting companies with identifying and eliminating these types of unneeded expenses. An HRO firm can help you recognize that virtually all of the “silos” need the same data, and that efficiencies can be gained by breaking down the walls that keep the silos apart. An HRO firm will come equipped with the expertise and tools needed to make this transformation of your HR department a success. By combining expertise, services, and technology, your HR department will be on the path to eliminating all of the duplicate, unnecessary, and wasted expenses.
Do you have HR silos? Tell us in comments below about how inefficiently—or efficiently—your business is running its HR or contact Early Growth Financial Services for help managing your business finances and costs.
SharedHR has over 30 years of experience in providing a flexible, integrated mix of HR Outsourcing, Consulting and Software Services for small and medium size companies.