Challenges of Outsourcing

While outsourcing offers many potential advantages, it also comes with risks to address: 

Data security and privacy concerns 

Benefits data is highly sensitive, including health information protected under HIPAA and other regulations. Outsourcing makes data security both more important and more challenging. 

Companies must vet vendor security practices thoroughly, including encryption, access controls, breach protocols, backups, audit, and more. It’s essential that your outsourcing partner has strong SLAs governing their data protection. 

Many providers allow clients to retain data ownership and place restrictions on data usage. Ongoing security reviews must be part of the outsourcing governance model. 

Integration with HR systems and data 

Effective benefits administration requires tight integration with core HR platforms and data like HRIS and payroll. Outsourcing adds a separate vendor into the mix. 

Robust integration capabilities are a must in any outsourcing vendor. Companies should demand proven APIs and interfaces to ensure seamless data sharing with HR systems. 

Vendor dependence risk 

Over time, reliance on external vendors can expose companies to unacceptable levels of risk if the provider relationship changes or ends. Steps to mitigate this include: 

• Assessing vendor stability, track record, resources and commitment to benefits outsourcing when selecting a partner 
• Structuring contracts to ensure appropriate knowledge transfer and portability of benefits data and processes 
• Maintaining internal staff knowledge of critical benefits functions and system capability to take on offloaded tasks if needed 
• Developing comprehensive vendor management processes for regular vendor reviews and contingency planning 

Stakeholder acceptance 

Outsourcing can meet resistance from internal HR if viewed as a loss of control or diminishing the department. Similarly, executives may perceive it as adding risk. Securing buy-in requires demonstrating clear business cases, being highly selective in outsourcing scope and choosing partners that integrate seamlessly as part of HR. Ongoing communication is critical to securing acceptance and buy-in across the board.