Companies Prefer Single, Outside Vendor for Leave Administration

The percentage of employers outsourcing both short-term disability (STD) and Family Medical Leave Act (FMLA) administration doubled in 2016 compared with two years ago, a new survey found. Insurance companies are among the biggest beneficiaries of this trend.

The falling unemployment rate is forcing companies to retain and attract employees. As a result, more pressure has been put on employers to ensure consistency with the execution of STD and FMLA policies across far-flung corporate offices.

But companies still have a long way to go when it comes to managing STD and FMLA leave administration. So relying on a single vendor appears to be the answer for managing employee leave.

Companies scored an average of 4.4 out of 10 in 2016 on the Guardian Absence Management Index. The 2016 score — although an improvement from the 3.7 recorded in 2014 and 2012 — is still low. This puts pressure on employers to make progress in return-to-work and leave administration, said Jesse Reach, director of absence management for Guardian Life.

For help, companies appear to be turning to outside vendors and consolidating their outsourcing to one vendor, the 2017 Guardian Absence Management Index and Study found.

Outsourcing STD and FMLA Doubles

The survey, conducted by Spring Consulting Group, canvassed 1,000 individuals handling disability and FMLA leaves for employers with between 50 and 5,000 employees.

One-third of employers outsourced both their STD and FMLA administration in 2016 compared with 16 percent in 2014, the survey found.

The percentage of employers using a single external vendor to handle both leave types also more than doubled during that time period - to 29 percent in 2016 from 12 percent in 2014.

The percentage of employers – 29 percent – using a single vendor to handle both leave types more than doubled over the same period.

“Having both (STD and FMLA) with the same vendor has benefits,” Reach said.
Managers can file a leave notice with one phone or employees can receive a single eligibility packet with applicable leave plans.

STD and FMLA governs areas such as employee paid and unpaid sick leave, or paid time off. It typically is overseen or managed by corporate human resources departments, sometimes with outside help.

Lost Productivity Costs Billions

As the volume of absence-related rules and protocols from federal, state and local governments rise, the challenge to employers deepens, Reach said.

Rules sometimes lead to contradictory outcomes. An STD request may be approved for a particularly employee but the FMLA request may be denied for the same employee, for example.

“The larger the employer, the more of a challenge it becomes,” Reach said.

Streamlined processes improve consistency around absences related to pregnancy, short-term illness or injury, Reach said.

Employees miss work for many reasons, some questionable and some not. Reasons include bullying, harassment, burnout, childcare, depression, illness, injury or plain and simple job disengagement, labor experts say.

Some estimates peg the cost of lost productivity as high as $84 billion annually in the U.S. So taking a consistent approach to employee leave improves the bottom line for companies large and small.

In addition to the rise in centralized and external administration of STD and FMLA leaves together, more brokers and vendors are offering their services to companies with as few as 50 employees. Those smaller companies are welcoming the help, the survey found.

Insurers Gain

Treating one STD leave different from another could lead to legal complications or inquiries from Department of Labor regulators or the Equal Employment Opportunity Commission. This is why a consistent and integrated approach to absence management is important.

But it’s not just STD and FMLA leaves that employers are looking to outside vendors for help with.

Companies also said they want centralized help with the Americans With Disabilities Act (ADA), the federal law governing protocols for the disabled.

Insurance companies have something of an advantage over a benefits administrator in that insurers are skilled in the ways of short-term and long-term disability insurance. Insurers appear to be big beneficiaries of the shift toward using a single vendor.

Last year, as many as 70 percent of respondents said they used an insurance company as a vendor for STD and FMLA administration, compared with 43 percent in 2014, the survey found.

Use of a third-party administrator (TPA) declined over the period with only 27 percent of respondents using a TPA for STD and FMLA administration in 2016.  This is down from the 47 percent using a TPA in 2014, the survey found.

The percentage increase in the number of employers outsourcing STD and FMLA administration, and the percentage of respondents using insurers to help them represent the largest jumps in the past three years, Reach said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at c[email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].