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Strategies for Controlling HR Costs

Human Resources

While many human resource managers recognize health insurance as the primary driver of rising costs under their purview, the price tags on other employee benefits, workers' compensation, and HR administration aren't shrinking, either. Here are a few suggestions for containing core HR expenditures:

Health insurance

Although growth in the average total cost of per-employee health benefits coverage slowed from 4.1 percent in 2012 to 2.1 percent in 2013, employers expect it to rise 5.2 percent in 2014i. This is partly because the Affordable Care Act (ACA) requires most individuals to obtain health care coverage or face a tax penalty. The Mercer survey suggests that the mandate will cause fewer employees to waive coverage for themselves and more will elect dependent coverage, increasing employers' costs (businesses may choose to limit enrollment by raising the employee contribution for dependents or imposing a surcharge on spouses who have other group coverage available).

With health coverage costs rising, consider forging a business relationship with a professional employer organization (PEO) to give your workers access to large-group coverage for benefits like medical, dental, and vision care, and life, disability, and workers' compensation insurance. PEOs allow for economies of scale by joining your workforce to a larger benefits and administrative employment group.

Employee benefits

Since good benefits packages can help retain employees, thoughtful employers offer benefits such as life insurance, paid sick leave, paid time off, and retirement plans, in addition to health care coverage. However, these costs inch up each year. The Bureau of Labor Statistics found that private businesses spent 1.8 percent more on worker benefits for the 12-month period ending March 2014 than in the previous 12 months. Employer costs for health benefits alone rose 2.4 percent.

To contain benefit costs, consider:

  • Having employees share some of the expense;
  • Whether you can afford to cover dependents, spouses, and domestic partners;
  • Offering benefits that make sense for your workforce (e.g., you might forego life insurance if most of your workers are young and single); and
  • Aligning your workforce with a larger entity, which can give you access to more comprehensive and less expensive employee benefits.

Workers' compensation

Most states require employers to carry workers' compensation insurance. Rates are set by states and vary by occupational risk classification. Managing these costs is largely out of your hands, but companies can benefit from working with an insurance agency with a thorough understanding of workers' compensation issues and regulations.

HR Administration

HR administration generally consists of functions such as recruiting, hiring, firing, training, performance evaluation, payroll, benefits management, and keeping up with workplace regulatory requirements. These regulations can change frequently and failure to stay compliant can result in hefty fines.

To help reduce costs, focus first on careful hiring, which can save the cost (and time) of posting positions, hiring headhunters, interviewing and screening candidates, and paying cash incentives to staff for referring new hires. A strong employee retention program — with a rich benefits package — can also help contain HR administrative costs because workers who receive good salaries and benefits typically want to stay put.

Outsourcing HR may also allow your company to mitigate some HR management costs, such as payroll administration, employee benefits, and staying compliant with regulatory demands. Consider partnering with an expert to help you manage these functions so you are better able to focus on employee performance and productivity. 


Mercer's National Survey of Employer-Sponsored Health Plans 2013


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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