Managing employee benefits is one of HR’s most important responsibilities, but it’s also one of the most challenging. Ensuring regulatory compliance, managing enrollments, answering employee questions, and overseeing vendor relationships all eat up time and resources — time that could be spent on more strategic work, like vendor negotiations and renewals.
That’s why many companies rely on benefits outsourcing to help them. Benefits outsourcing — often called benefits administration outsourcing — is when companies partner with a third-party provider to handle some or all of their day-to-day benefits administration.
Outsourcing benefits administration helps companies improve compliance, gain access to specialized expertise, and enhance the employee experience.
On average, businesses outsource 40% of their benefits functions, according to a 2023 survey by the International Foundation of Employee Benefit Plans. Roughly one-third have increased outsourcing over the past five years, while only 4% have reduced their reliance on external providers.
But is benefits outsourcing the right choice for your organization? Understanding its advantages and potential drawbacks can help you determine whether it aligns with your business needs.
What does benefits outsourcing include?
Working with an outsourcing provider should feel like working with an extension of your own HR team. Too often, though, it can just feel like another vendor relationship you have to manage.
Benefits outsourcing can include:
The exact way that organizations use benefits outsourcing often depends on their size, internal HR resources, and the complexity of their benefits:
- Small businesses — These companies may lack the personnel to operate a full HR department. Benefits outsourcing offers businesses like these cost-effective access to expertise they couldn't otherwise afford to have in-house.
- Mid-sized companies — A mid-sized company most likely has a dedicated HR department. But they may not have the time or knowledge to do everything internally. Benefits outsourcing enables existing HR departments to focus on more strategic initiatives.
- Large enterprises — The bigger the business, the more complex benefits administration is, especially when you might have employees across multiple states, provinces, or countries. For large enterprises, a benefits outsourcing provider helps maintain compliance across jurisdictions and simplifies deployment and ongoing management.
What are the advantages of benefits outsourcing?
Outsourcing benefits administration reduces your internal team's burden while bringing in specialized knowledge and tools you may not have in-house. Delegating these tasks to experts can deliver:
- Cost savings — Having a partner reduces your costs by eliminating or minimizing the need to hire additional employees. And because your service partner absorbs much of the day-to-day administrative workload, you also cut the errors that come from relying on an overworked team.
- Access to expertise — The ideal benefits outsourcing provider has deep experience across benefits administration, particularly in compliance and benefits trends, and can help you avoid costly penalties by staying ahead of regulatory changes. This means you don't have to burden your internal team with that responsibility or spend time and money bringing a new hire up to speed.
- Improved efficiency — Partnering with a benefits outsourcing provider frees you to focus on the work that drives your business forward while easing the hidden costs of stress, burnout, and administrative errors. Most HR teams are already overworked and understaffed, so taking benefits administration off their plate lets them turn to other mission-critical goals.
- Enhanced employee experience — For benefits administration specifically, a Workday-native partner delivers something other vendors can't. Your employees don't have to learn a new system, because Workday remains your system of record. They can manage their benefits in Workday as they normally would, while the provider validates and processes those events behind the scenes. Plus, employees get dedicated support when they have questions.
- Protection from liability — Because outsourcing providers stay current on the latest changes in local, state, and federal regulations, your organization benefits from that expertise. The provider also accepts responsibility and liability for compliance issues. And because sensitive employee financial and health information routes through them rather than your team, your organization further reduces its own exposure.
What are some potential challenges for benefits outsourcing, and how can you avoid them?
Before outsourcing benefits administration, it's worth considering some potential challenges. Many of these stem from the traditional model, where a vendor runs benefits administration in a separate, bolt-on system.
A Workday-native partner is different: for core benefits administration, they operate within your tenant. This means they have more visibility, and Workday remains your system of record.
With this distinction in mind, here are a few issues your organization may face and how to handle them:
- Loss of control — Handing the day-to-day work of benefits administration to a third party can be nerve-wracking, especially if you can't see into their system. For core benefits administration, a Workday-native partner resolves this challenge by delivering services inside your Workday tenant, so you retain full visibility into what's happening.
- Data security risks — Giving sensitive information to an outside party requires a leap of faith, especially with a standard vendor that copies that data into a separate platform. For core benefits administration, a Workday-native provider works inside your existing tenant, minimizing data duplication.
- Cost vs. value perception — Outsourcing benefits administration requires real investment, but confirming you've gotten a good return can be difficult. Research the provider's track record and success metrics with organizations like yours, and check their references directly. A good provider will be glad to share this data.
- Communication — Communicating with a third-party provider is a learning curve for everyone. If a vendor is too hands-off, employees may not trust its guidance. The right provider closes that gap with a dedicated support team that works as an extension of your own. This way, employees get consistent answers rather than being routed through a faceless queue. Before choosing your partner, confirm whether your employees will get a dedicated specialist.
- Evolving needs — Whether you're adding out-of-state locations or new employee categories, your business's needs can change quickly. Your provider should be able to keep up. Before locking in a final decision, make sure you understand their capabilities and limitations, and ask for specific examples of how they've supported clients through similar transitions.
Is benefits outsourcing right for your organization?
The right benefits outsourcing partner can improve efficiency, strengthen compliance, and give your workforce a better experience, while freeing your internal team to focus on strategic work rather than administrative overhead. As a Workday-native, in-tenant provider, OneSource Virtual (OSV) manages benefits administration directly inside your existing Workday environment. We also connect complementary services, such as COBRA, leave of absence, and FSA/HSA administration, back to the same Workday foundation.
Talk to one of our experts today to see what benefits outsourcing could look like for your organization.