Every year, Software Advice speaks with thousands of organizations looking for the right benefits administration software—giving us unparalleled insight into the needs of today’s software buyers.
We recently analyzed a random sample of these interactions with small-business buyers (from companies with annual revenues of $100 million or less) to uncover their most common pain points and reasons for evaluating new solutions.
This report highlights the top benefits administration software buyer trends 0f 2014.
- More than half of prospective buyers (56 percent) were using manual methods, such as pen and paper or spreadsheets, to handle their company’s benefits administration needs.
- The most requested functionality was an employee portal for either self-service or open enrollment (42 percent), followed by reporting (32 percent) and document management (21 percent).
- Most buyers sought benefits administration systems as part of a comprehensive suite, along with applications for payroll (32 percent), performance reviews (23 percent) and time and attendance tracking (21 percent).
Over Half of Buyers Rely on Paper or Other Manual Methods
When asked what methods they were currently using to handle benefits administration, a majority of buyers in our sample (56 percent) said they were using pen and paper or other manual methods, including basic spreadsheet programs such as Microsoft Excel. Twenty-seven percent of buyers were also using commercial human resources (HR) software.
Prospective Buyers’ Current Methods
Other methods for handling benefits administration, such as outsourcing it to a third party or using non-HR software, such as QuickBooks or Microsoft Access, accounted for just 17 percent of our sample (combined). Even if all methods of software usage are taken together (38 percent), this still pales in comparison to the amount of buyers using paper or spreadsheets.
When companies are small in size, it can be easy to track benefits information using manual methods—at least initially. As more employees are hired, however, it can quickly become unmanageable.
Pam Beckerman, senior HR director at Jabian Consulting, describes a “critical mass” that companies reach when they become too big to use manual methods, and thus switch to using software for benefits administration. According to our data, that critical mass seems to occur in the 101-250 employee range, as this was the most common size in our sample (accounting for 30 percent).
Demographics: Prospective Buyer Size by Number of Employees
Desire to Go Electronic Drives Most Software Purchases
This widespread reliance on non-digital methods of administering benefits correlates with the primary reason buyers in our sample sought new software: the need to “go electronic” (22 percent).
Top Reasons for Software Purchases
This was followed closely by the need to consolidate or integrate benefits administration tasks (19 percent), the need to improve information tracking (18 percent) and the fact that their current solution was missing necessary functionality (17 percent). Clearly, buyers across the board were looking for a more more comprehensive, modern solution to handle all of their HR needs and save them time.
One buyer, for example, summed it up by saying their company wanted to “consolidate, automate and streamline the HR process into one single solution that all locations can access.”
“People want to centralize and consolidate for ease of administration and cost purposes,” Beckerman explains. “If you bundle services, you can often get a break on them, just like buying insurance. Some of this is efficiency, some cost-saving and some is labor-saving.”
Given the upcoming “employer mandate” deadline for businesses to provide health care for full-time employees under the Affordable Care Act (ACA), it was somewhat surprising to learn that only 4 percent of our sample cited the need to be compliant as a reason for seeking software.
Beckerman warns that if businesses aren’t compliant (that is, if businesses with more than 50 employees aren’t offering health insurance to their full-time employees), they had better have a system in place.
“Because [my business is] not borderline in any respect, we’re not going to do a lot of calculation of full-time equivalency [FTE] or other variables like that,” he says. “But if you do have a lot of part-time employees, you’re going to have to do all sorts of workforce analysis, and you’re going to need some software to help you do that.”
It’s possible, perhaps, that many smaller companies simply know they don’t need to worry about compliance. According to Politico, 96 percent of businesses are too small to be affected by the ACA. Of those that are affected, more than 90 percent already offer the health benefits necessary to satisfy compliance.
Employee Portal Is Most-Requested Feature
We also asked buyers what features and functions they wanted most in a new benefits administration system. Obviously, the ability to manage benefits was cited most. Topping the list of features required to achieve this, however, was an employee portal (42 percent), followed by reporting (32 percent) and document management capabilities (21 percent).
Top-Requested Benefits Administration Functionality
The employee portal numbers break down into two categories: 35 percent requested only employee self-service features, while an additional 7 percent specifically asked for the option for employees to self-enroll in benefits. Given that automating HR processes through employee portals can reduce administrative work by 40 to 50 percent and reduce HR costs by 60 percent, it’s easy to see why small businesses are eager to implement them.
“Portals facilitate employee self-service,” Beckerman says. “So if an employee moves, if they have a baby, if they want information about their 401(k) investments—they can transact all those things themselves, and you’re not going to [require] a person sitting in an HR department to service them.”
Buyers Want Integrated Suites With Payroll, Reviews
The buyers in our sample overwhelmingly wanted an integrated suite (96 percent), in which benefits administration is bundled with other HR applications. The rest preferred multiple, separate products (3 percent) or a “best-of-breed” solution (1 percent), in which benefits administration is sold as a stand-alone application. This data aligns with our recent findings in the payroll software market.
Given buyers’ preference for integrated suites, we wanted to know what applications, in addition to benefits administration, they wanted in a new system. Payroll was the most common (32 percent), followed by performance reviews (23 percent) and time and attendance (21 percent).
Payroll and benefits administration go hand-in-hand as the main applications in most core HR systems, so it makes sense that buyers would want these functions bundled. However, the fact that these buyers were also looking to handle strategic HR needs, such as performance reviews and employee training, shows that these small businesses are starting to seek features beyond just the necessities in new software solutions. Indeed, according to Gartner’s 2014 Hype Cycle for Human Capital Management Software report, more companies will consider prioritizing strategic HR applications, such as performance reviews and succession planning, in the next two to five years.
Buyers Primarily Want to Track Paid Time Off
When we asked what benefits information they wanted to keep track of, most buyers mentioned paid time off, or PTO (31 percent), followed by information about vacation accrual (18 percent) and health insurance (12 percent).
Top-Requested Benefits Tracking Information
The fact that “PTO” was specifically mentioned by buyers more often than terms such as “vacation” and “sick time” corresponds with the growing trend of companies ditching traditional time-off policies (with separate allocations for vacation, sick and personal time) in favor of comprehensive PTO systems that lump everything together. In fact, from 2002 to 2010, the use of PTO systems grew by 43 percent, while the use of traditional systems declined 24 percent.
New PTO systems have led to numerous benefits, including easier time-tracking and less absenteeism. But one drawback is that workers might be afraid of using their allotted time all in one place.
“Sometimes women with small children will be afraid to take their vacation because they’re trying to stockpile it for when their kids are sick,” Beckerman explains. “If their vacation was separate from their sick pay, they would have more full buckets and feel more free to take their vacation.”
Most Buyers’ Time Frames Between One and Six Months
When asked what time frame they were looking at for implementing new software, the greatest percentage of our buyers said from one to three months (32 percent). Slightly shorter and longer time frames were popular answers, as well, with 30 percent expecting to switch in three to six months and 17 percent expecting to switch in less than one month.
Prospective Buyers’ Time Frames for Implementation
Given that HR software affects an entire company, many players need to be involved before a decision is made and a new system is put into place, which lengthen the implementation time frame.
For example, one buyer in our sample expected to be able to get through the approval process for a new system “in the next one to two months,” while another expected to have a “preliminary meeting” with leadership before moving forward in the purchasing process.
Every small business experiences growing pains; a fact that is clearly reflected in our findings. As more employees are hired, companies soon realize that it becomes too time-consuming and laborious to keep track of every employee’s vacation accrual, health care, 401(k) and more with merely pen and paper or spreadsheets. We’ve found this often happens in the 101- to 250-employee range.
To fix this problem, small-business buyers are doing two things. First, they are ditching manual methods and going electronic with a comprehensive HR system for handling not just their benefits administration needs, but all of their HR needs.
Second, they are putting more control in the hands of their employees by opting for employee portals to automate things such as benefits enrollment or requesting time off. Software can help HR staff achieve this goal, allowing them to focus less on updating employee information or looking up how many vacation days a worker has left, and more on strategic HR needs, such as employee training and performance evaluations.
The detailed methodology for this report can be found here.
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