Pros and Cons of Manual Benefits Administration

Manual benefits administration is like baking a cake.

Your recipe calls for a bunch of different ingredients – eggs, flour, sugar – but, if you don’t manage them in exactly the right way, you could end up with a catastrophe instead of a confection. Contrary to baking, however, the stakes of making sure your employee benefits are managed correctly are a lot higher than burning a Bundt.

With legal compliance, employee retention, and even business productivity on the line, choosing a sound benefits administration strategy is a critical decision. Given that 63% of employers qualified managing employee benefits as “increasingly complex” in 2022, this decision holds even more weight.

For many employers, it boils down to manual benefits administration vs. using benefits administration software.

Here at Combined, we know how important effective benefits administration is and want to help you choose the right strategy for your business, so we are breaking down either side of this consideration.

In this article, we will discuss the pros and cons of handling benefits administration manually (But, to explore the tech-savvy side of benefits management, read our article, Pros and Cons of Using Benefits Administration Software).

By the end of this quick read, you'll have a clearer understanding of whether manual benefits administration is the right fit for your business or if it's time to consider a software solution.

The basics of manual benefits administration

Before we dive into the pros and cons, it's crucial to understand what manual benefits administration actually involves.

What does “manual” really mean?

When we say “manual, we're talking about a hands-on, paper-and-pen approach. At its core, this approach means managing employee benefits without the aid of specialized software or automated systems.

Think of it as the difference between using a paper map and a GPS – both can get you to your destination, but one requires a bit more effort and attention to detail.

Key components

While this might sound straightforward, several key components make up this manual process.

Let's unpack them:

Communication

With a manual administration process in place, information about benefits is typically disseminated through traditional channels like staff meetings, emails, or printed brochures.

This requires careful planning and execution to ensure that all employees have the information they need to make informed decisions about their benefits including deadlines, carriers, plan coverage limitations, changes to available plans, and more.

Enrollment

During the enrollment period, employees fill out paper forms to select their benefits. These forms are then carefully reviewed and manually processed by HR.

This can be an exceptionally labor-intensive process, especially for larger companies offering a diverse range of benefits where each carrier typically has its own special form.

In this case, employees have to fill out all of their same information over and over again on anywhere from 2 to 5+ forms!

Record-keeping

All records related to benefits are maintained in physical files or basic digital formats like Excel spreadsheets.

This means that HR needs to be meticulous and follow compliant protocol when updating these records to reflect any changes, such as new enrollments, terminations, or modifications to existing benefits.

Compliance

Ensuring compliance with federal and state laws is a significant part of manual benefits administration. This involves keeping up-to-date with legislation, interpreting how it applies to specific benefits packages, and making any necessary adjustments. It also extends to document preparation and distribution as well as record-keeping.

All of this is done manually, adding another layer of complexity to the process.

Pros and cons of manual benefits administration 

In this section, we'll take a look at the various advantages and disadvantages of manual benefits administration. Evaluating these pros and cons can help you make an informed decision that aligns with your organizational goals. 

Pros of manual benefits administration

When it comes to managing employee benefits, the manual approach does have its own set of unique advantages.

Let's explore these pros to give you a well-rounded view of whether manually managing employee benefits is the right solution for your business:

Ideal for small companies

If your company is small or doesn't offer a wide range of coverage options, manual administration might be the way to go.

Wondering why?

Well, the limited administrative work may not justify the cost of an advanced software system or the time required for training and implementation. This is especially true if you have no immediate plan to rapidly expand.

Provides cost savings

Intuitively, then, manual benefits administration can offer notable cost savings, particularly for businesses on a tight budget.

Unlike software-based systems, this approach avoids the costs associated with setting up new software, such as data migration and system setup, as well as any need for recurring software subscriptions or additional training.

Without these expenses, businesses that opt for manual administration have the flexibility to allocate these resources elsewhere, posturing it as an attractive option for cost-conscious businesses. However, it's important to balance these upfront savings against potential downsides like labor investment and increased error.

Minimizes major technical issues

With manual administration, you won't have to worry about technical glitches like server downtimes, software updates, or automation anomalies disrupting enrollment.

While this does give you more control over the process, it may be more time-consuming. But there is a certain peace of mind that comes with knowing a power outage won't derail your benefits enrollment.

Eliminates system management struggles

Along the same lines, manual administration may be more straightforward to manage for someone who is well-versed in it, rather than attempting to learn how to use new software.

This simplicity can be a significant advantage, especially for companies that don't have the resources to invest in specialized, and likely ongoing, training.

Reduces data security risk

When properly stored, paper records are less susceptible to mass data breaches. There's no risk of cyberattacks or unauthorized online access to sensitive information, providing you with an extra measure of security.

Offers a personal touch

One of the most significant advantages of manual benefits administration is the element of person-to-person engagement that it allows.

According to a study by PwC, 82% of American employees value human interaction and want more of it in the future. Employees appreciate a face-to-face scenario with the opportunity to ask questions directly.

Imagine the comfort of sitting down with a familiar HR representative to discuss your benefits options in detail. This personalized experience can be particularly reassuring for those who are not tech-savvy.

Cons of manual benefits administration

While manual benefits administration has its merits, it's essential to consider the challenges that come with this approach.

Here are some of the most common cons that come with manual benefits administration:

Demands a larger time investment

The most glaring downside of manual administration is the time it requires.

Think about it – each employee’s forms not only need to be double and triple-checked but also entered by hand into the carrier’s system or submitted through email, consuming valuable time that could be better spent on strategic tasks.

The time commitment involved in this process is not just a minor inconvenience but, rather, a substantial demand that can divert resources and focus away from other critical areas of your business.

Increases the risk of human error

Recall the mention of double and triple-checking forms alongside manual data entry as a drain on time. Time aside, this also heightens the risk of error.

This internal task increases the risk of mistakes in a process where a single typo or oversight can lead to incorrect benefit allocations, causing headaches for both employees and administrators.

But, when manually managing benefits, it's not just internal errors you have to worry about. You also need to check for billing mistakes made by insurance carriers, requiring additional time and expertise. Without a careful bill auditing process, costly problems may go uncorrected.

Poses compliance challenges

Manual benefits administration is fraught with potential compliance pitfalls.

Due to its susceptibility to human error, it can lead to legal consequences and compliance issues that could jeopardize your business.

And don’t forget, staying compliant requires not only a deep understanding of, but also unwavering attention to the relevant and changing benefits laws and regulations. Any oversight in this area could result in costly fines, legal action, or both.

Limits access to information

Without a centralized digital platform, accessing benefits information can be a hassle for both employees and HR. This can make it difficult for employees to fully understand their benefits options, lead to delays in decision-making, and hold up administrative processes.

Complicates scalability

As your business grows, the limitations of manual administration become increasingly apparent. The effect of each of the above cons is amplified by increased business size.

The time and effort required to manage a growing employee base can quickly become unmanageable, likely necessitating either expanding your HR team at the cost of labor or transitioning to a more efficient, automated system.

Choose the best approach to benefits administration for your business

By reading this article, you should have a clearer understanding of what manual benefits administration entails and how it could potentially fit into your business operations.

So, is manual administration the right choice for you?

The pros and cons outlined above should give you a more informed perspective to make that decision! If you're still on the fence or have additional questions, our team of HR and benefits experts are here to help.

Schedule a meeting to match your business with the right benefits administration strategy.