Costs & benefits: do you know the connection?Understanding the costs associated with Employee Benefits is essential for medium-size companies hoping to achieve efficiency.
It is well known that companies with operations in multiple countries are in the best position when their employee benefits (EB) plans are controlled centrally. The largest companies have implemented a central function within their HQ that is responsible for EB management. However, in medium-size companies with international operations (i.e., 1000 – 5000 employees), this level of control and management is still often non-existent.
The key to gaining control over constantly rising EB costs is in the understanding of the provided employee benefits. For departments such as Finance, it is not enough to understand EB at only a local level (i.e., subsidiary).
As a result of this, internal reports often classify employee benefits under categories such as “personnel costs”, not taking into account or revealing the proportions between salary, and mandatory and voluntary EB. This also means that the central Finance function in many companies is not aware of the current situations in other countries: costs, the quality and availability of benefits, financing methods and the potential for optimization.
This can only be improved upon with accurate knowledge and management.
So, what kind of employee benefits should be reported to HQ?
The employee benefits that are of relevance to Finance are those generally deemed “insurable benefits”, which have the following characteristics:
- Statutory and/or Voluntary
- Mandated or not by Social Security, Laws or Labor Agreements
- Contributory for Employees or solely Employer Sponsored
- Insured, Self-insured or Pay-as-you-go
Why care about mandatory/statutory benefits? In several countries, some mandatory benefits are provided through private carriers chosen by the employer (i.e., the local subsidiary). Switzerland and Germany are examples of this, with their occupational pension schemes.
When the employer decides which carrier to choose or whether a benefit should be insured at all, or retained as a risk, there is potential for optimization at local or international levels; therefore, a need arises for management by the central Finance function.
The solution to gaining control over employee benefits data and costs can be found in the support and expertise provided by employee benefits specialists. This support is imperative in placing the control of EB organization back into the hands of C-level management.
Only with such support and knowledge can organizations with international operations see optimization in their EB management and find the right balance between costs and benefits.