Off-Payroll Benefits: 3 Major FAQs

Sep 13, 2021

HR Departments are increasingly asked to do more with less staff, and more often than not, they are spread too thin.

How we got here.

HR Departments are increasingly asked to do more with less staff, and more often than not, they are spread too thin. How we got here. Over the past few decades, HR technology has made dramatic gains in popularity and accessibility. The migration to the cloud has greatly increased the breadth and depth of choices like Payroll, HRIS, BenAdmin, ATS, Time & Attendance, and Performance Management solutions, and employers can buy full-suite or a la carte – there’s no shortage of options out there.

This technology has, over time, given companies the ability to run leaner HR departments. Management realized, “Well, we don’t need these roles anymore because all these duties are now automated and online.”

It makes sense because professionals want to spend more time focusing on strategic initiatives rather than mundane tasks.

A strategic initiative is not, “Oh, it’s 5:30 on a Friday. I should reconcile my voluntary benefits bills against my payroll.”

Nobody wants to do that.

What types of companies benefit the most from taking benefits off-payroll?

Here’s the bottom line: By taking benefits off payroll, any group can alleviate the administrative burden and liability of managing employee payroll deductions.

But generally, the larger the organization, the more issues it will see when it comes to inconsistencies and errors in payroll-deduct benefit programs. There are hiccups in the actual payroll deduction process, missed or late enrollments, data entry errors, and countless other mistakes that can occur. And the larger the organization, the more likely mistakes are going to happen.

Size is not the only determining factor here. Certain industries, such as hospitality and retail, have large part-time or seasonal populations that typically are not offered benefits. The economy is changing drastically, though, and the number of part-time and gig workers continue to represent a larger portion of the overall workforce each year.

Most people who work part-time – or people who are in the gig economy – don’t have access to benefits. For example, only 5% of gig workers say they have access to retirement.

And they say, “What the heck do I do?”

Some of the demand for off-payroll benefits is actually being driven by employers who have to figure out how to attract and retain the best part-time seasonal, gig economy workers because it’s such a significant portion of the population now.

67% of full-time employees are interested in gig work instead of their current jobs, and 35% of employers have hired or are actively planning to hire more gig workers. So, you must offer them benefits to be competitive.

Benefit brokers are similarly aligned: “Oh my gosh, there’s all this low hanging fruit out there!”

Let’s say you’re a large sandwich shop chain, and you have 20,000 employees. And say you’ve got 5,000 full-timers and 15,000 part-timers. Your broker loves providing benefits to your 5k full-timers, but what if you suddenly decide to make all 20k eligible? Now your broker gets to provide valuable benefits to a much broader audience (well probably generating more revenue for their firm in the process).

This new eligible class will most likely be offered an abridged version of the existing benefits suite, but that doesn’t take away from the tremendous value you’d be delivering.

There’s a downside, though.

If I’m that large sandwich shop chain with 5,000 people I’m currently administering benefits for, running the payroll deductions and administration, there’s already all kinds of liability on me. If there’s a mistake and someone doesn’t actually have the coverage they thought they enrolled for due to a clerical error, that’s a major liability. The list goes on, and we’ve all heard the horror stories (or, in some cases, lived them).

So, do I really want to expose my company to the liability and administrative hassle of offering benefits to a high turnover portion of my workforce (in this case the 15,000 part-time and gig economy workers I employ)?


Why? Because 43% of gig workers say, employers can offer better benefits to attract them to take a full-time job, reducing high turnover.

But the LAST thing the company wants is for this new initiative is to be a new set of 15,000 potential payroll deduction headaches.

For large companies with lots of gig and part-time workers, providing benefits off-payroll is drastically less responsibility from the HR team. They can just show these part-time seasonal employees that they have access to group discounted benefits. Participants simply pay for it with a credit card, ACH, etc.

With the advent of new technology, we can now take benefits and offer them outside of the traditional payroll deduction model.

This technology has enabled companies to go ahead and say, “Boy, we’ve wanted to offer our part-time staff all these great benefits, but we didn’t want to take on the administrative headache.

Now there’s no headache for us; the payments are off-payroll, and I’m no longer in the middle of these transactions.”

The demand comes from having the technology to enable it and because part-time and gig workers are representing a larger and larger portion of our overall economy.

Which benefits are perfect for off–payroll, and which are not?

Core health plans include health, vision, and dental insurance. Anything that doesn’t fall into these categories is fair game for off-payroll.

The best and most obvious benefits to take off-payroll are voluntary benefits. This is where everybody’s problems lie. The HR world has major headaches with voluntary benefits when they are run through payroll.

A voluntary benefit could be something like supplemental life insurance, which is a more traditional “core” benefit, but funded 100% by the employee rather than employer-paid.

Disability policies come to mind here as well (which, by the way, should always be paid for with post-tax money so the benefit is not taxable). Examples include accident policies, critical illness, cancer plans, pet insurance, legal, ID protection, etc.

Does taking benefits off-payroll allow companies to provide more benefits for their employees?

Absolutely. That’s for several reasons for that. For instance, you could have a subpar payroll system as a company with a limited number of slots for payroll deduction. But another possibility is that the sheer thought of adding more benefits to the payroll deduction process can cause a lot of unnecessary stress.

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