Where should benefits sit in an organisation?

With a growing number of employers sharing responsibility for perks with finance departments, Jenny Keefe asks where benefits should sit

Traditionally, HR has run the show when it comes to perks. Day-to-day administrative chores may have been farmed out to the finance team or outsourcing firms, and specialist functions might have managed pensions or fleet, but the reins of power have, to date, remained firmly in the grip of HR although this could be changing.

A straw poll carried out on employeebenefits.co.uk showed that the majority (90%) of organisations still put HR in charge of employee benefits, while a further 5% have a standalone benefits department. However, 5% have handed the task to the finance department – a small but significant number.

In today’s cost-focused economy, finance departments are starting to cut HR out of the picture when it comes to benefits, as they begin to play a bigger role. Even if finance does not have ultimate control, it still has a say in how benefits are run.

Nearly half of companies (45%) say the finance department has a growing influence over benefits policies, according to a survey of 135 multinational firms Managing employee benefits globally, published by consultancy Towers Perrin in November 2004. The report also showed that companies’ top benefits worries are keeping a grip on costs and managing financial risks, particularly with regard to pensions.

Jean Barclay, senior lecturer in people management at Caledonian Business School, says: “HR people are not always good at figures and finance. Finance would be more than able to keep a check on costs and uptake of benefits. They may also be better at negotiating discounts from suppliers.”

Number crunching
This concern over HR’s lack of financial skills is echoed throughout the industry. Property consultancy Jones Lang LaSalle, for example, runs benefits through its HR department. However, Theresa Salter, director of human resources, explains that its HR team needs a helping hand when it comes to number crunching. “One drawback that we occasionally experience is that members of the HR team lack the more advanced financial and analytical skills that are sometimes needed to make fiscal decisions and projections on the implementation of a specific benefit.

“Fortunately, we are supported by procurement professionals whose expertise is invaluable and their negotiation skills can provide much added value.”

Another way employers get around this issue where it exists is by giving HR and finance collective responsibility for perks. This is the case at hotel-booking business Holiday Extras, where the two functions share the load. Callum Husein, group head of personnel and development, says: “One way to free up HR time to allow us to play to our strengths is for our finance guys to play to theirs. They provide some of the numbers when it comes to renewal time while we do all the other HR work attached to benefits.”

Combining the strengths of these two functions can also be advantageous for those involved. Maurice Cheng, chief executive of the Institute of Payroll Professionals, says: “Any [structure] that puts HR and finance to work together is a good thing as it brings in a set of corporate values and efficiency that HR needs to understand more.”

Some organisations, however, have traditionally preferred to keep benefits as the preserve of just one department. This has typically concerned more complex perks such as pensions and company cars.

Some employers, therefore, may use a standalone benefits team. Stephen Perkins, professor of human resource management at London Metropolitan University, says: “There might be perceived advantages of having a department that looks after matters to do with benefits – keeping it all in one place. But such a theoretical advantage may fail the reality test in supporting an organisational strategy of devolving people management to line managers, including ensuring budgetary accountability for investment in pay and benefit.”

But Raymond Caldwell, senior lecturer in management at Birkbeck University, adds: “Who owns the benefit process does not really matter. What really counts is how efficiently and effectively the service is delivered. At an operational level, it’s less important which function manages the process, and specialist benefits such as pensions and fleet need dedicated expertise irrespective of their functional reporting line.”

But HR needs to remain in the loop. Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development (CIPD), says: “If benefits are managed separately, HR needs to make an effort to talk to those responsible on a regular basis. Doing so will ensure benefits are an integral part of the offering and that this is communicated in an effective manner. It can lead to problems with HR forgetting about benefits or not understanding how they work fully, so these benefits don’t become an effective part of the total reward offering.”

Another common option is to outsource perks to third-party organisations. Using an outsourcing firm to take on some, or all, of an organisation’s benefits can net big cost savings, and provide valuable expertise. Jason Taylor, business development director at Ceridian, says: “Outsourcers have instant access to market leading-practices and resources. They also have wider market awareness and understanding of issues that other organisations are facing.”

Yet when handing over responsibility for benefits, whether internally or externally, there are some pitfalls to watch out for. The first step is to clarify who is going to do what. Una McGeown, HR co-ordinator for pub chain Botanic Inns, says: “Finance looks after the administrative side, processing sick pay and holiday pay, and pension contributions. Sometimes there is confusion within our outlets in terms of who the paperwork sits with: the HR or finance department?”

Caledonian Business School’s Barclay agrees that it is necessary to define levels and areas of responsibility, for example, around administration and recommendationand decision-making.

One issue with moving benefits responsibility away from HR is that it may lose touch with day-to-day knowledge, so ensuring that those responsible for administering benefits keep HR up to speed with reporting and feedback is essential. “There needs to be reporting mechanisms from finance to HR, and it needs to know the key criteria to report. Staff need to know the key contacts and who to contact with questions.

“You need to identify the lead contact person in finance or in the outsourcing organisation, together with the lead contact person in HR, so that things are not lost between the cracks,” says Barclay.

Of course most people agree that offloading some administrative tasks is a useful way of freeing up HR to focus on more strategic tasks. Payroll departments, for example, have long made salary deductions so providing benefits support is a natural next step. This is fine provided HR retains ultimate control, says Perkins.

“Handing benefits administration to finance, or any other support function, may suit business circumstances. But ensuring benefits policy is determined with direct input from HR, whose purpose is to understand the connection between people and performance, remains critical,” he explains.

Understandably, the HR community believes it should keep its influence over perks. The CIPD’s Cotton says: “The danger is that if benefits are not part of the HR function then the reason why benefits are being offered in the first place gets lost in the whirl of day-to-day activity. By being a part of HR, the rewards team can examine how the benefit package supports the needs of the business and change or adapt it as required.”

Understanding staff needs
Above all, HR knows what makes workers tick. Chewing gum manufacturer The Wrigley Company runs benefits through its People, Learning & Development (PLD) department. Helen Franklin, PLD director, says: “The department is close to the business needs which the benefits system supports and has a good understanding of employees’ needs through many forms of engagement, from surveys to [staff] forums.”

HR professionals are also uniquely placed to communicate benefits to staff. Botanic Inns’ McGeown explains: “Because HR is responsible for managing employee benefits, we are in a better position to promote benefits to potential new employees when advertising vacancies, at interview stage, and at company induction.”

In addition, HR can help an employer to stand out from its competitors. “The HR department attends regular conferences and obtains regular updates from the Chartered Institute of Personnel and Development. This enables us to keep up to date with what other companies offer and continually review and improve our offerings,” says McGeown.

If HR is to retain its dominant position in relation to benefits then it will have to improve its financial acumen and learn the language of the finance department. “To add value to the organisation, in the future HR must be good at figures, education and communication,” says Cotton.

Case study – Cooper Parry – an account of good staff liaison

Cooper Parry divides responsibility for benefits between its HR and finance functions.

While the HR team at the East Midlands accountancy firm runs the lion’s share of perks, its finance department oversees its car fleet and pensions.

Neena Tebbutt, director of HR, says: “Responsibility for employee benefits is [with] a combination of the director of HR, director of finance and our flexible benefits expert in the financial services team. However, last year the flexible benefits process went online for the first time, which has led to a significant reduction in the amount of time spent on administrating employee benefits.” The company has 260 employees and offers a flexible benefits package with more than 10 options, including holiday trading, private medical insurance, pension contributions, dental insurance and company cars.

Tebbutt believes the set up has several advantages. “The three leaders of the scheme can utilise their key strengths to maximize the success of the scheme. The flexible benefits expert can find the best deals for the firm and the director of HR can listen to the needs and wants of the employees.”†

She adds the finance department also plays a key role. “The director of finance is involved right from the beginning and so has an awareness of the impact on his payroll team very early on and is responsible for liaising with benefit providers to notify them who has taken up each benefit offered and for making appropriate payments,” she says.

Case study – Real tonic at Bristol-Myers

Bristol-Myers Squibb Pharmaceuticals has a dedicated compensation and benefits team as part of its HR department.

Alison Maitland, director of compensation and benefits at the US-owned drugmaker, which markets drugs to help those suffering from conditions such as HIV and cancer, says: “All benefits for employees in the UK are managed by the UK compensation and benefits team, which is part of a global compensation and benefits structure.” The firm, which employs 2,000 staff in the UK, offloads some of the burden by outsourcing its pension, healthcare and fleet administration to third party organisations.

Maitland believes having a specialist benefits team has its advantages. “The compensation and benefits team provides expertise and support for staff in complex and specialist areas such as pensions, healthcare and cars. We are able to negotiate costs with third-party suppliers, which is obviously of great benefit to the company.” Its benefits include a pension, childcare vouchers, company cars, concierge service, flexible working arrangements, on-site gyms and discounted Bristol-Myers Squibb products.

Case study – Homeserve calls on HR for perks

Homeserve GB sticks with the tried-and-tested method of running its employee benefits through the human resources department.

The HR team at the emergency call-out and repairs company has responsibility for all perks, bar its company car fleet and gym membership, which are outsourced.

However, the department still needs to get changes signed off by senior management. Lorraine Nicholls, HR director, says: “HR is the guardian of the policy but any decisions that involve changes to our policy are managed through agreement with both the board and compliance committee. It, therefore, offers the benefits of a centrally-aligned function but engages with other areas of the business when necessary.”†

The firm, which has 1,260 employees, offers all staff a defined contribution pension, holiday trading, free gym membership, and plumbing and drainage insurance. Depending on their grade, certain employees are also eligible for company cars and private medical insurance.