How to identify the indicators in your industry that signal change

Through a company’s human resources department run many signals of how an industry is trending. For example, logistics and distribution of goods, workforce levels and compensation rates are all predictors of how an industry is trending relative to the economy.

Looking back before the onset of the Great Recession, Sequent CEO William F. Hutter says there were signs that problems were coming.

“We learned through hindsight that there were trends that occurred nine months earlier than any of the other major indicators — losses on the stock market, for instance — that were predictors of what was coming,” Hutter says. “Knowing what we know now, it may be possible for businesses to use their HR departments as a bellwether indicating possible turbulence in their industries.”

Smart Business spoke with Hutter about how companies can use their HR departments to get ahead of trends affecting their business.

What are the signals that run through HR that can indicate larger trends?

In late 2007, HR departments noticed a change in the logistics industry. Transportation businesses are linked to supply chain businesses, and trends in consumer products offer a strong indication of the health of an economy.

At the same time there was a slow down in janitorial businesses. Companies were discontinuing their commercial cleaning relationships — an important service, but not a core business function.

Occurring simultaneously were pullbacks at the two ends of the cycle: supply chain and clean up. The declines were happening in late 2007, and by mid-2008 those companies had shrunk their staff by 50 percent. It wasn’t apparent at the time, but there was a deeper message. It escalated to an unprecedented decline localized to a few industries.

Today, logistics and janitorial are experiencing growth through hiring and investments in facilities. This is a welcome trend as the concerns around federal regulation ebb.

How can CEOs and business owners find these signals?

Every industry has a class of businesses or group of clients that are the barometer of their business. The responsiveness of the business cycle has compressed so rapidly that CEOs and business owners must now watch a number of indicators to get the true picture of the changing climate.

A good first step for business leaders is to determine which companies are the bellwether predictors for their business that can indicate when things are headed in a good or bad direction. Activity in consumer goods, for example, is a strong indicator of the general health of the economy, which is why it’s wise to watch the movement, growth or retraction of companies in that industry — Amazon Prime, for instance. But there are unique industry indicators worthy of monitoring. These are likely well-known clients that are a critical component of the revenue stream. If they struggle or grow, it can have consequences that ripple through the industry. Keep an eye on the health of these businesses to stay ahead of larger economic trends.

Once the signals have been identified, how can they be used to protect a business or generate opportunities that come from economic changes?

The agility of business is more important than it ever has been. It’s up to the leadership of today’s businesses to identify the early bellwether indicators and monitor their behavior.

It’s also critical for companies to diversify their revenue streams to protect themselves from being overleveraged in a particular market.

Organizations have a responsibility help protect their assets and employees are a company’s most important. A business is only sustainable when its leader is not the central component of its revenue generation capabilities. Companies that have hired and trained people to make an impact on the revenue stream are more likely to succeed than one that relies too heavily on one person to bring in money.

Though it may sometimes seem as if changes occur rapidly, there are typically indicators that precede it. Identifying those indicators and acting before a macro change occurs is critical to business success.

Insights HR Outsourcing is brought to you by Sequent

Close the leadership gap with a knowledge transfer strategy

Over the past few years, the rapid pace of baby boomers retiring has threatened the transfer of organizational knowledge from one generation to the next. That’s forcing many companies to address the growing gap in their leadership pipeline.

“Leadership development has become an even more vital process for companies,” says Midge Streeter, director of talent management and culture at Sequent. “A leadership development strategy reduces turnover of high-potential leaders and transfers information from one generation to the next, allowing companies that do it well to be highly competitive.”

Smart Business spoke with Streeter about organizational leadership trends and how companies can prepare and retain its next generation of leaders.

What are the characteristics companies should look for in potential leaders?

Companies should map their business strategy to their hiring practices to ensure alignment with their succession plan so that new hires have the required competencies to drive the business forward. Those competencies vary depending on the business, its size and its needs, but there are commonalities. For instance, good leaders are socially and self-aware, can build strong relationships and can develop other individuals in an organization.

How can companies address leadership gaps as more baby boomers retire?

With a sense of how the brain drain will affect their business, companies should review their succession plan and look for weak spots. Determine who is retiring, when and what areas within the organization could be most vulnerable to the upcoming retirement. Do that while looking three to five years into the future. Identify, prioritize and engage potential retirees, even those who don’t have direct reports because they still have organizational knowledge. Ideally, these near-retirement baby boomers will become mentors to high-potential employees and then transfer knowledge.

A deep and unexpected recession caused boomers to stay in their jobs longer, which delayed the opportunity for Generation X to take ownership of additional responsibilities. Gen X is small compared to the other two generations, but companies should consider how to bring those employees along because they need to be ready to lead.

What are the signs that someone isn’t as capable of leadership as first believed?

Usually, those who struggle in leadership roles aren’t able to effectively communicate to their direct reports. The main challenge new leaders face is leaving their old role behind. They often think they have to get all the work done themselves as they did as an individual contributor. That makes it hard to delegate. Leaders need to focus on coaching and bringing their direct reports along so there’s a distribution of workflow across the whole team. Once that’s recognized, the leader can be coached and his or her skills can be improved.

How can companies retain those who they want for leadership positions?

Talented, high-potential leaders are leaving organizations after 18 to 24 months, which is frustrating for decision makers and expensive to the bottom line.

To stave off this trend, it’s important that millennials feel that their voices are heard and the company is providing development opportunities. They want to be coached and mentored and have a chance to show their capabilities. When that happens, they tend to stay. It’s all about bringing them along by offering stretch projects and giving them the leadership development opportunities they’re looking for. Conveniently, it’s reported that 75 percent of millennials want a mentor and 60 percent of boomers have been sought out by millennials for guidance. Companies could benefit by taking advantage of this tendency.

Millennials are aware that they’re a hot commodity, which is why many are leaving their employers so soon. The reason for the high turnover is not typically an inadequate salary, but a lack of development opportunities. Those organizations that develop the next generation of leaders are going to reduce their rate of turnover and compensate for the brain drain. It will also position them to recruit the best-of-the best and outperform the competition.

Insights HR Consulting is brought to you by Sequent

High-deductible plans reduce health insurance costs by skipping copays

There is a significant misunderstanding about copays that has employees and employers mistakenly believing that copays are an important part of their health insurance coverage, says Sequent CEO William F. Hutter.

“Physician copays increase out-of-pocket expenses, and by extension, the cost of insurance to the consumer,” he says. “The copay gets accumulated to nothing.”

The misconception of the role of copays shelters individuals from understanding the true cost of an office visit and the cost of all the procedures that were performed during that visit, he says. The copay is paid to the physician, but it does not count toward an individual’s deducible or out-of-pocket use. That money, then, is unaccounted for in the total cost of a person’s health care.

“And that’s just a person’s primary care person. What if he or she has a specialist?” Hutter says. “All of these copays get lost. So the person might have a chronic condition and need lab work or frequent checkups with specialists, and none of those copays get accumulated to his or her deductible. It’s a hidden cost of insurance that’s part of the design of a plan that was sold as a convenience to the employee, but just adds expenses and obscures the true cost of service.”

Smart Business spoke with Hutter about a health insurance coverage option that forgoes copays and how to introduce it to employees so they understand the benefit.

What is an example of a health insurance plan that doesn’t include copays?

One option without copays that is now being delivered in the market is called a high-deductible health plan. That word, high-deductible, scares people.

A qualified high-deductible program is predicated on a person’s deductible being met before the insurance carrier contributes any expense to the person’s medical claims. The range of the deductible can vary from $1,300 to $3,000, depending on the plan. The difference is that there are no copays, so all medical expenses are paid out of pocket until the deductible is met.

Typically the monthly cost of a high-deductible plan will be lower because it protects the insurance carrier from any first-dollar claims, which means if a person never hits his or her deductible there is never an insurance claim. If the carrier can shield itself from a claim expenses by eliminating office copays, the consumer wins in lower monthly premiums. It also means that the total cost of insurance to the employee, including his or her premiums and any out-of-pocket dollars, will be less than it was under a copay plan.

Given what you’ve just highlighted regarding copays, how should employers use that information?

Companies should consult their broker for plans that count all out-of-pocket dollar expenses by the employee. That protects the employees’ interests because it allows employees to accumulate all health care expenses toward their out-of-pocket or deductible. All insurance carriers have a version of this plan, but the habit of including a copay continues to have its appeal because most people don’t understand how it factors in to overall plan costs.

How can companies introduce high-deductible plans to employees who believe copays save money?

One aspect to highlight when presenting it to employees is that high-deductible plans can be paired with a health savings account. Typically there are enough savings available when switching to a high-deductible plan that the company can, in the first year, seed fund employees’ health savings accounts to offset the initial out-of-pocket expenses. Typically in a transition year, employers seed fund a single individual $500 and a family $1,000 into employee-owned accounts. This helps ease employee concerns that may pop up around paying for office visits. The money stays in the account and will roll over until it’s used.

The important thing is communication. Be sure that everyone understands the architecture and structure of the high-deductible plan.

Companies cannot buy insurance solely based on the cost of the monthly premium. There are other costs to consider. Companies should take a balanced approach and analyze the total plan costs, considering all the factors.

Insights HR Outsourcing is brought to you by Sequent

The digital transformation in retail means broad, continuous change

For the past few years, the talk in retail has centered around the omnichannel concept, which is the idea of providing the same experience for customers no matter the buying channel. Customers expect to buy anything from anywhere at any time and have it shipped anywhere they want. This primarily digital transformation is perpetually reshaping how retailers think about their business and their supply chain.

“If digitization is not top of mind for retailers, it should be,” says Beth Thomas, executive vice president and managing director of Consulting Services at Sequent. “It’s a big undertaking involving changes with people, processes, distribution channels and technology. Companies need visibility of their inventory and a plan to tie systems together between stores, warehouses and online. Digital culture continues to change how retailers operate.”

Smart Business spoke with Thomas about what retailers must do to keep pace with consumer expectations.

What do consumers expect from retailers as more buying shifts from in-store to digital?

Consumers today either don’t want to meander around stores doing their shopping or they don’t have the time to shop. They’re doing their research online so that by the time they get to a store they know what they want and its price — if they even go to a physical store. Consumers also want to browse and shop seamlessly on any connected device and have their orders shipped the same day.

Click and collect, for example, is a service that’s making headway in London. Consumers can order products online and have them delivered to lockers rather than their homes or a retail store. Similarly, courier services within the city use bike messengers to deliver same-day orders to many locations. The level of convenience has improved greatly for consumers as retailers are forced to find novel ways of staying ahead of their competitors.

As consumer spending and behavior adapts to this increased focus on quickness and convenience, retailers must organizationally prepare to support this new service model.

What changes should retailers expect to make to provide the best service for consumers?

Retailers must consider how adapting to consumer demands will impact employees. They’re going to need training and onboarding as part of a digital internal strategy to keep them apprised of changes and processes. Organizationally, determine how employees can best keep up with demand through efficient execution using new tools and data. They have to understand their role and what their daily workflow looks like in the new way of retail. It’s a major change management issue that requires a sound strategy to do properly.

Otherwise, the areas within implementation that will require a great deal of attention are the strategies for supply and inventory, and technology.

Consider the customer experience with every decision. Learn how customers are buying and what they expect from the experience, then map a strategy to those behaviors. For example, not long ago consumers weren’t able to buy something online and return it to the store because those purchasing streams involved different merchandisers, buyers, etc., and the systems couldn’t keep track so the products were inconsistent. Now customers expect it.

Planning the stock and inventory is going to become more important now that delivery is on a shortened timeline. This requires consideration of distribution models that ship from the store, strategically placed distribution centers around the country, or through third-party platforms. Retailers need to have visibility in a network-wide inventory that supports this process.

What should retailers keep in mind as they adapt their processes?

These adaptations are part of a strategic initiative that can’t really ever be considered finished in the traditional sense because it’s rapidly changing. It needs to be seen as perpetual improvement. Success is contingent on having an efficient supply chain that’s demand driven because consumers want to buy anywhere, any time and have their purchase shipped anywhere.

There’s a long way to go until the full cross-channel customer experience is realized. If that goal is not top of mind, it needs to be.

Insights HR Consulting is brought to you by Sequent

Business owners shouldn’t try to do it all. Fortunately, there’s help.

For business owners, especially those who lead small and midsize organizations, the pace of business is often frantic. The business leader needs to stay focused on the needs of the customer and put out the inevitable fires. That means important functions such as payroll, benefits administration and HR end up getting shuffled to the back of the line and are often given to someone without specific experience in these areas.

“Whether a person knows anything at all about payroll, benefits or HR, the regulations that guide it, or the associated reporting requirements becomes irrelevant,” says William F. Hutter, CEO of Sequent. “These functions are done haphazardly or as needed, rather than with the guidance of a proactive plan and knowledge of the legal boundaries. That can create a very large gap in compliance.”

Smart Business spoke with Hutter about the challenges smaller business face with essential but secondary functions, and how these responsibilities can be better managed.

How can those who own or operate smaller businesses keep up with these responsibilities so they can focus on their company’s core functions, those activities on which the business was established?

It’s almost impossible for an organization to keep up with all the legal changes that happen day in and day out. Under the Obama administration, some 6,000 new regulations have passed that impact employers. Unless there is a specific effort to understand how these laws affect a company today and in the future, it’s impossible for smaller companies to be proactive.

That’s why some companies choose to outsource their benefits administration, HR and payroll functions. Contracting with a specialist means working with an expert. It’s their primary business, not an afterthought.

Typically companies are outsourcing a number of these functions — taxes, workers’ compensation management, insurance, retirement plans and legal help.  And while they outsource to various service providers, they maintain liability for their actions. Working with a comprehensive service provider, however, can protect the business from associated liability, while consolidating and very often reducing the total cost, which is an efficient way to manage those aspects of their business.

There still needs to be internal HR staffers involved in the exchange with any provider, whether it be multiple providers or just one. No outsource service provider can manage a company’s employee relations. The people inside the company should be in a position to leverage their partners to create an ongoing dialogue that adds value to the company, while freeing up staffers to focus on their core responsibilities.

What reasons do business owners have for not utilizing an outsource service for these functions?

The No. 1 reason business owners don’t outsource is that they fear they’ll lose control. That’s complete fiction. In fact, business owners find they have more control because they’re not spending hours trying to understand their compliance requirements. Instead, the work is passed over to people who are well-versed in that area, which also offers peace of mind. Owners get to focus on the company’s more meaningful activities — those that drive the business forward — while having the assurance that they’re not running afoul of the law.

What do third-party consultants offer to smaller businesses?

The real value of third-party consultants working with a company is that they have fresh eyes. They get to look at things dispassionately, above the day-to-day activities, and see the operation in a way that owners often can’t.

Consultants shouldn’t just be brought in when there’s a problem. It’s when things seem to be going well that businesses get complacent. And that’s when owners need to look toward the future and make improvements. That’s easy to say and hard to do because the pace of business can be relentless. Third-party consultants can step in and give business owners a chance to catch their breath.

There are always opportunities to improve how a business is run. But it requires change. A business can’t improve and stay the same. Sometimes the best thing to do is ask for help.

Insights HR Outsourcing is brought to you by Sequent

Employee engagement: The best kept secret that all top companies know

What do powerful brands and successful companies have in common? They are investing in employee engagement as one of their top strategic initiatives.

“It’s a process, not an event,” says Beth Thomas, executive vice president and managing director of Consulting Services at Sequent. “It’s part of their everyday culture.”

She says many companies are missing the boat thinking employee engagement is just another HR “pie in the sky” effort. However, it is being statistically tied to increased key performance indicators.

“HR leaders are banging the employee engagement drum and business leaders are not listening. Employee engagement should be the top goal of all companies, and it is for some of the most successful in the world.”

Smart Business spoke with Thomas about the importance of employee engagement.

Why is employee engagement important?

For years we have been saying employees are a company’s competitive advantage. Treat them right or someone else will. Some $300 billion is lost in productivity each year from disengaged employees. One retail company revealed that for every one-tenth of a point it boosted employee engagement, its stores saw a $100,000 increase in operating income annually, not to mention better customer loyalty. Staggering numbers, encouraging advice, and yet 90 percent of business leaders have no employee engagement strategy or are not actively engaged in it.

Still, many business leaders have no clue what employee engagement is, nor do they see it as something they need to be bothered with. However, experts and companies that are proving them wrong disagree.

Top companies and brands say that employee engagement is the top initiative that helps create their brand, drive success and recruit and retain top talent. If their customers see that their employees are happy, it creates a loyalty to the brand and increases sales. Culture can make or break a business.

What should be included in a company’s engagement effort?

For most executives, success is defined by profit or revenue levels, brand equity or percent of market share. To truly understand the key drivers for business success, however, it’s critical to examine and measure the impetus: employees. They are the ones who make the products and serve customers. They are the face of a company’s brand.

There is one thing all employee engagement efforts have in common: They understand what employees are thinking. That happens not just by using an employee engagement survey, but by creating a sustainable culture in which having a voice matters, where employees feel they can express what they are thinking not just once every year, but every day.

Managers should be trained on how to engage employees every day. Some companies use social media to connect more closely with employees — for instance, through online ‘campfires’.

What can companies expect from improved employee engagement?

Studies measuring the impact of employee engagement have found better results in nine performance outcomes:

  • Customer ratings.
  • Profitability.
  • Productivity.
  • Turnover.
  • Safety incidents.
  • Shrinkage.
  • Absenteeism.
  • Patient safety incidents.
  • Quality (defects).

Employee engagement is not an HR initiative. It is a business initiative. Companies that understand this are the ones that are most successful.

Marketing is also tied to culture and brand because the customer experience is fueled by the brand promise, which is closely aligned to the employee culture.

How to improve employee engagement varies by industry, location, company size, how much money and resources an organization has to invest into developing its culture, and its philosophy around employee engagement. It’s not one size fits all, but if better performance, higher productivity, industry recognized brand and increased profits are important, wouldn’t you want to dedicate time, resources and focus on it?

Insights HR Consulting is brought to you by Sequent

What foreign companies should consider before setting up in the US

There are many companies outside the U.S. that would like to establish a presence in the country. But before doing so, there’s a lot to consider.

“Regulatory compliance and organizational structure are concerns for foreign companies looking to establish a presence in the U.S., especially small to midsize businesses,” says William F. Hutter, CEO of Sequent. “But there are other hurdles such as living arrangements for foreign employees, location of the business and onboarding. It’s important for a foreign company to think through these decisions and processes before establishing a presence in the U.S. in order to function well in the marketplace.”

Smart Business spoke with Hutter about what foreign companies should consider before setting up a business in the U.S.

What should foreign companies understand in terms of regulatory compliance before they can operate in the U.S.?

It’s important to ask a lot of questions when determining the organizational structure the foreign company will establish in the U.S. For instance, is the company wholly owned as a foreign subsidiary? Will it be a standalone business? And if it’s the latter, will there be officers of the corporation in the U.S? How will the company repatriate the funds back to its home country? These are all interconnected issues to consider before getting started. Too many companies rush to set up in the U.S. and then need to backtrack. It’s better to find a knowledgeable adviser that can offer a broad perspective of considerations before business is established.

Another issue is the collective insurance environment. Corporate insurance from a foreign parent company likely won’t extend to the U.S. Foreign subsidiaries will likely need to purchase insurance from a carrier recognized in the U.S.

Understanding the differences between the U.S. and European health care environment is critical but very difficult. It’s hard to explain the cost factors and deductibles and co-insurance to a European company. But the most difficult concept is that of workers’ compensation coverage. European companies tend to think that by having general liability and health care coverage they’re set, but they aren’t. The European system covers everything, so it’s a big difference.

What are the challenges overseas companies face when it comes to HR functions and how can an outsource partner mitigate them?

The HR function for foreign domiciled companies in the U.S., again, is about the foundational items. Companies certainly need to meet compliance guidelines to protect themselves from exposures, but HR functions to nonresident aliens in the U.S. involves advocacy — help negotiating the various systems, explaining health care insurance benefits and explaining the pension or retirement plan system.

The employees coming to the U.S. from a foreign company’s headquarters to work are typically accomplished. They’re not sending rookies. They’re sending senior employees who have agreed to live in the U.S. for a period of time to plant the seeds of the parent company. And it typically takes a year before a foreign company hires local employees because its primary focus is on business development activities.

Among the basic considerations for these employees is determining where they will live in the U.S. and where to locate the business. Socioeconomic data of a region can show consumer lifestyle, which is compared to the company’s target clients to determine where the best opportunities exist. There are relocation specialists that can help companies make best decisions regarding location when expanding into the U.S. They can help employees think through their personal living arrangements based on the work they’ll do and where potential customers are located.

Foreign companies interested in establishing themselves in the U.S. should start with the end in mind. They should ask a lot of questions to determine what the goal is for those setting up the business, such as the lifestyle they expect, family issues such as schools and community, and also the business needs and client locations. It’s not something to jump into blindly. Develop the strategy and a road map to the goal well ahead of any permanent move and that should relieve much of the anxiety associated with setting up a business in the U.S.

Insights HR Outsourcing is brought to you by Sequent

Consultants augment staff, transcend politics to achieve results

Recessions have a significant impact on businesses. Companies whose revenue is negatively affected must sometimes cut deep as they try to close budget gaps. As the market recovers, they find they need help running operations or with project expertise, but they may have reservations when it comes to hiring soon after such uncertainty, which is where consultants can be a tremendous benefit.

“Some companies struggle to effectively reach their performance, project or critical initiative goals after a staff reduction,” says Beth Thomas, executive vice president and managing director of Consulting Services at Sequent. “That’s where consultants come in. They offer a point-in-time solution to a problem, often transcending office politics, without adding to overhead.”

Smart Business spoke with Thomas about how consultants can help companies solve immediate problems and be better prepared to handle them in the future.

What’s wrong with how some companies view the role of a consultant?

Not all consultants provide quality work, which can give consultants in general a bad reputation. ‘Squatters,’ as they’re sometimes called, are consultants that charge too much and don’t transfer actionable insights. Often they come from companies that send in teams of inexperienced people that lack the experience to solve the problem they were brought in to address.

They give a bad name to the consultants that have been practitioners — business owners and high-level executives — and bring that experience to their consultative roles.

How can qualified consultants help companies that aren’t in a position to hire additional staff?

Experienced consultants have the expertise needed to solve problems quickly, which saves companies money. Experienced consultants have learned lessons that can save their clients weeks and months of analysis. They know what works and what doesn’t.

Being an outsider also means consultants are able to stay out of internal political feuds that can stall initiatives with personal and not empirical problems. An external change agent creates a political safe zone for ideas to be heard and considered. It can be hard for people within a company to do what’s right in an environment of layoffs and major operational or strategic shifts as they may withhold what could be considered an unpopular opinion for fear of losing their jobs.

Consultants can operate with sufficient political cover. They are objective and can say what’s wrong with a business without the consequence of getting fired.

Employees and even executives can become deaf when they’re hearing the same things over and over. Consultants offer a fresh perspective. Whether he or she confirms or criticizes an approach, that objectivity can get people to listen.

Staff augmentation is a welcome service consultants can provide. Sometimes a company just needs an extra hand in the short term. Consultants plug holes left after a company downsizes or has lost key contributors. This can be an inexpensive and safe solution compared to hiring a full-time staffer, especially if the company isn’t confident it has successfully weathered the economic storm.

While consultants can fill gaps where a company’s internal knowledge base is insufficient, they can also help build expertise in a company. For instance, a company lacking project management expertise can work with a consultant to train people, building up knowledge so it’s not necessary to hire consultants in the future.

What are the signs it’s time for a company to bring in a consultant?

Bring in a consultant before a critical initiative kicks off. That’s the time to evaluate resources and ensure the company has the talent to meet its objectives.

It’s better to know before the outset of a critical project that there is a talent gap than to lose momentum because there aren’t enough horses to pull the cart. And companies that are unsure they’re headed in the right direction can use someone from the outside to validate or challenge a plan so the company has the confidence to move ahead full force.

Insights HR Consulting is brought to you by Sequent

Save money by identifying the true costs of being an employer

Here’s a novel exercise: Ask your employees to gather all the binder clips in your office that aren’t currently being used and put them in a box in the supply area. You’ll likely collect hundreds if not thousands of unused clips. It’s also very likely that, while so many unused binder clips were scattered around your office, many new boxes of clips were purchased when employees couldn’t find them in the supply area.

The excess expenses related to being an employer stay hidden in your company like binder clips because waste can’t be discovered until you go looking for it. It’s possible, however, that by scrutinizing and better classifying your costs, you could reduce expenses related to employment significantly.

Smart Business spoke with William F. Hutter, CEO of Sequent, about how looking closer at employment-related expenses could save companies considerable money.

How does improper categorization lead to greater expenses?

It’s becoming critically important as employers’ costs increase to look for new ways to save money. It’s often the case that expenses directly related to employees are inadvertently hidden in the profit and loss statements, because they are improperly categorized.

Employers tend to look at taxes, workers’ compensation and health insurance and mistakenly believe that’s all of the employee expenses they have. In truth, for every dollar spent on wages there are costs over and above those that employers either can’t or choose not to identify. For instance, let’s say an employer pays for an outside expert to help with Affordable Care Act (ACA) reporting requirements. Where does that expense get tallied? Often it’s reported as a one-time vendor expense, but it’s really an employee expense.

As compliance issues continue to pile up, it will become more important to identify these expenses.

What do employers miss when it comes to the cost of employment?

There are many expenses directly related to employees that are often improperly classified. Those can include:

  • The cost of new hire reporting to the state to determine if there are wage garnishments that should be served against new employees.
  • Training, whether mandated or required.
  • Employment records management.
  • Recruiting efforts.
  • Unemployment or workers’ compensation hearings.
  • Records storage.
  • Employee Retirement Income Security Act compliance work.
  • Creating plan documents.
  • Required ACA notifications that must be printed and mailed to employees.

Depending upon the source cited, the cost of being an employer and meeting all the compliance guidelines could be $5,000 per employee. Knowing the source of those expenses is the first step to bringing those costs down.

How can employers better account for all employee-related expenses?

Companies seem willing to spend a lot of time negotiating the lease for their copiers, scrutinizing it down to what they pay per page printed to try and save as much as possible. But considering that employee expenses, including wages, are likely 60 to 70 percent of a company’s gross profits, it would appear that it’s a better use of resources to identify the sources of those expenses and work to control them.

To get a better sense of what is being spent on employees, identify the areas of spending so the costs can be managed. Many times those spending areas are spread across multiple areas or even among several vendor relationships, so employers need a strategy to manage that in a comprehensive fashion.

Very large companies have vendor management departments, which may or may not be an internal department — it could be contracted out to an independent company. These exist so these companies can begin to control all the various expenses that go out of the building by multiple decision-makers spent with third parties. While your company may not have the resources for such a dedicated department, committing time to equating specific costs to employee expenditures gives credence to the task. Identifying expenses can help a company better manage them.

Insights HR Outsourcing is brought to you by Sequent

Changes to Ohio law allows employers to control health insurance expenses

Traditional health insurance carriers are naturally profit-oriented. Their revenues must, like all businesses, cover their expenses. The Affordable Care Act (ACA) has changed the financial model for health insurance carriers by pegging medical loss ratios for large group plans at 15 percent. That has required insurance carriers to rethink their business model because they’ve still got to make money and pay expenses, so they’ve done just about the only thing they can to compensate: raise premiums.

To help companies cope with the increase in health insurance premium costs, the Ohio Department of Insurance (ODI) has updated its 20-year-old regulations for everyone’s advantage.

“When Ohio decided not to establish a state health insurance exchange, it created an opportunity to build a better mousetrap,” says William F. Hutter, CEO of Sequent.

“There had been legislation on Ohio’s books that allowed an organization to form a multiple employer welfare arrangement, which can essentially bind employers together to form a way to provide health coverage. There is now an entity, which companies can join, that allows member companies to participate in a nonprofit health plan that creates a direct relationship between membership, premiums and expenses.”

Smart Business spoke with Hutter about how Ohio’s new regulations create opportunities for employers to mitigate their health insurance expenses.

What do you expect will happen to premiums in the coming years?

This year brings significant changes for small employers because all health insurance plans will need to meet ACA guidelines. Health insurance providers will need to produce pretty big numbers to maintain revenue under the ACA medical loss ratios, or they will need to skinny down operating expenses. They’ll likely choose to increase insurance premiums.

What options do businesses have to mitigate premium increases?

ODI realized it needed to update its regulations because the existing laws were out of touch with the new financial model of health insurance. It sponsored legislation along with other key participants that laid the groundwork for new rules that allow businesses to participate in a multiple employer welfare arrangement.

Ohio businesses can now enjoy greater transparency into their health insurance expenses that most health insurance carriers won’t provide.

The multiple employer welfare arrangement has the potential to reward employers that monitor the health of their employees, provide wellness programs and incentivize employees to adopt healthier habits by reducing health insurance costs.

This model also creates transparency, allowing employers to see their health coverage expenses, understand why they’re going up or down and take actions to positively affect the rates. These insurance pools offer economies of scale without pooling the risk. Each member company is in its own risk bucket.

How can companies take part in a multiple employer welfare arrangement?

A company would need to work with an entity that manages a multiple employer welfare arrangement. The company’s employees would complete a personal health care survey, which will provide a rating based on the health of the group.

The result is that the company pays for its own risk but the transparency allows a company to do something to lower its costs. Members of the health fund arrangement are incentivized to help employees be healthier —by offering health screenings and wellness programs, for example — and healthier employees are generally more productive and have fewer absences.

This program makes the most sense for companies with 100 or fewer employees. Any company with more than 50 employees will experience the full impact of the ACA, which includes the administrative, regulatory and reporting requirements. Companies that join a multiple employer welfare arrangement can have much of that burden lifted.

Insights HR Consulting is brought to you by Sequent