Choosing the right flexible benefits system

As the technology behind flexible benefits systems continues to evolve, there are a number of features employers should look for, says Alison Coleman

Simply offering a flexible benefits scheme no longer provides employers with a guarantee of attracting top candidates to an organisation, or persuading them to stay. Despite the economic downturn, employers will need to ensure that they are offering the latest all-singing, all-dancing flex systems in order to continue to compete for key talent.

Flexible benefits were first administered through cumbersome paper-based systems, which later evolved towards technology-based models, and more recently into the web-based generation of flexible benefits systems that are accessible by employees at home and at work 24/7.

Chris Bruce, managing director of Thomsons Online Benefits, says: “Previous software packages were developed as benefits selection tools that had the capacity to produce reports. The problem was that these left the administration team with a huge amount of work to do in manipulating data to payroll. [The] latest products have automated the entire administration process, making it faster and easier for everyone involved.”

But while developments in modern technology now deliver the bells and whistles that make today’s flex schemes so appealing, particularly for organisations that are looking for new ways to attract and retain staff, they have also made the process of choosing a system more complicated. “In some ways it is easier for providers to work with greenfield clients [that do not already had a flex scheme] in terms of moulding the shape and direction of a system to their needs. On the other hand, [employers] which have had flex, albeit, a paper-based system, are likely to have a better understanding of how the latest technology will work,” adds Bruce.

The most common type of flex system has the application hosted by the provider. This means that all hardware is managed by the provider and all that is required of the employer is to have access to a web browser, either via the intranet or internet.

This type of model ensures that the installation and running costs are competitive. However, it is important for employers to check the provider’s security credentials due to the sensitive data which will be hosted remotely over the internet. Employers should also determine if the application is configurable or bespoke, the latter being expensive and unwieldy when it comes to making changes and updates.

When choosing a system, employers should try and assess whether a provider has been successful in similar projects, says James Verner, sales director at Vebnet. “In terms of size, simplicity or complexity, they should have access to a number of references where [schemes] have been in place for a minimum of two or three years [and analyse] the providers’ performance against any service level agreement, costs in ongoing support, flexibility to client change requests, and innovation in technology.

“This market doesn’t stand still, so ask system providers how they plan to develop the technology for new functionality. How is access to these changes charged to the client, and what levels of resources are applied to technology development?” he explains.

Employers must also be clear about which services a provider will offer. The current trend is to have a single provider for all services, including consulting, communications and administration, but like with the basic system itself, employers should check that providers have a proven track record in these areas.

Naturally, cost will be a determining factor in choosing a system, so employers need to identify what they will get for their money. “Lower-cost systems will tend to be offered by a provider which has a low-cost operating model. Their resources, availability and service will reflect this, so in the medium-to-long term, [the employer] would struggle to stay at the front of market trends. Our approach is to deliver a total reward portal, and flexible benefits sits as an integrated module within the portal,” says Verner.

Employers will also need to assess how easy it is to use the system, as much for their own benefit as for that of employees. Diane Smith, business development manager at Northgate Arinso Reward Solutions, says: “For many organisations this is their first experience of using any kind of employee self-service technology. Providing too many hurdles for employees to cope with when they interact with the system may confuse them and deter them from making any benefits choices, thus destroying the objective of increasing employee engagement and leading to significantly lower take-up rates.”

However, in focusing on ease of use and some of the more exciting high-tech features of a system, employers should ensure that they do not overlook other key issues such as systems integration. Accurate day-to-day management of employee contract information should feature highly on the list of must-have features of any prospective flex system. As employee data changes on an almost daily basis, with new starters, leavers, contract changes, promotions and so on, it is crucial for this information to be kept up to date across all of an employer’s systems, including HR, payroll and reward.

Smith adds: “There is a great deal of focus on improving and enhancing the front-end modelling tools that the employee has access to, particularly in respect of pensions modelling. The realities of poor integration are exposed in these situations, as once the employee has finally made their choices, these options cannot easily be translated across the payroll system. For organisations that have had flex schemes in place for a number of years and are upgrading to modern online systems, this becomes their single point of focus. Through experience, they understand that ineffective integration data integrity management can be the single point of failure in any flex scheme.”

A flexible benefits database provides a wealth of data for employee engagement trend analysis, yet many employers fail to check whether the system they are investing in will include sufficient simple management information outputs. “Providing a monthly summary of who has selected which benefits is often standard provision, however, beyond this, many flex schemes cannot deliver the data that the employer needs to review their benefits strategy and effectively manage their scheme on an ongoing basis,” says Smith.

Employers should also ensure that the capabilities of a flex technology system in terms of administration are set out within a service level agreement. The key to any outsourced flexible benefits administration is regularly appraising the quality of service received, response times, and employee interaction measured against key performance criteria.

Employers need to consider their likely medium-to-long-term requirements and determine whether a system will be able to grow with them by asking providers how they think both the market and its technology will develop.

Bruce believes that the future of flex technology will involve the development of global systems. “We are already working with major multinational [organisations] which need a flex system that works efficiently across international borders.”

However, Robert Zampetti, a principal in Towers Perrin’s Change Implementation practice, says that employers should not lose sight of what it is they are actually buying. “It is the system, and not the benefits that they are considering. For every pound of benefits spend, 95 pence is the actual cost of the benefits; [such as] the insurance, the gym membership, the savings plans [and so on], and only five pence is the cost of the technology and administration. When it comes to getting a return on investment, think about the offering itself, rather getting carried away by a flashy delivery system,” he says.

He adds that organisations looking to move to a technology-based flex system should learn from previous buyers’ mistakes. “A decision of this magnitude should not be left entirely to benefits team, no matter how expert they are. [However, any] procurement team should include representation from the reward, payroll, HR, and management functions, as well as employees, to define the ideal flex system,” he concludes.

What to look for in a system

When it comes to choosing a flex system, every organisation will have its own individual requirements, based on its size, workforce demographics and available budget. However, as a general rule of thumb, systems should include:

– Flexible benefits enrolment, which can be priced in a variety of ways.

– Automated lifestyle events, which are driven directly by the HR system feed or by employees.

– A net pay modeller based on employees’ benefit selections and tax codes.

– History of employees’ previous years’ selections.

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