Last week marked Neeyamo's Payroll Beyond Borders' virtual global payroll industry event. The keynotes were delivered by payroll industry leaders Dan Maddux, Executive Director, American Payroll Association, and Ken Pullar, CEO, CIPP. The event had around 1,200 participants from around the world and was the first global coming together of global payroll industry experts since the start of the pandemic. As well as looking at the impact of the pandemic on payroll operations, there was also attention paid to how global payroll and agility is increasing in importance, reflecting changing priorities and the need to "meet the employee" where they want to work.

New Payroll Complexities Created by the Pandemic

The pandemic and related regulations or government subsidies meant new levels of complexity were introduced to payroll operations, complexities that needed to be handled without any delays. Payroll leaders highlight that payroll teams, both outsourced and in-house teams, should receive recognition for their efforts. The migration of staff to work-from-home locations put additional strains on payroll departments, both because of the associated risks and also the challenges in managing employment taxes in alternative payroll jurisdictions. Employees don't always feel the need to tell their employers where they are located if they are working remotely. Over the next year, some organizations may be facing the tax impact of changed employee locations retrospectively. The business continuity plans that were activated were not designed or expected to remain in place for months on end as lockdowns were extended. 

The pandemic and the general ensuing migration to WFH has helped shift the employee/employer power dynamic in favor of the employee. Employers will increasingly need to meet their employees' requirements as to where they want to work and how they want to work if they are to keep talent. Payroll systems need to be agile to support additional payroll jurisdictions, and payroll managers should consider adding new processes to enable employees to include remote locations for recording their place of work.

Employers are advised to re-evaluate business continuity plans and payroll controls. This is a time to upgrade and improve business continuity by investing in more robust digital processes to enable payroll to continue flexibly. The pandemic has exposed significant manual processes based on outdated systems that need to be re-evaluated to keep the payroll running during times of crisis.

On-Demand Payroll Increasing in Significance

There has been a growth in on-demand payroll offerings, otherwise known as ESAS (employer salary advancement schemes), particularly in the U.S. and the U.K., which are the primary markets currently. The pandemic has helped accelerate this growth: in the last two years, more workers have had to contend with financial stresses caused by a combination of limited or zero savings, reduced income, and unforeseen emergencies. And as the cost of living continues to rise in most markets, this isn't going to get better any time soon. Even amongst workers with above median, secure incomes and a decent level of savings, a growing proportion has been facing problems with their financial budgeting, perhaps due to timing mismatches between income and major outgoings. The household debt-to-income ratio has been rising for years, and in the U.S. and U.K. is over 100. With the current war for talent, there has been an increased focus by organizations on employee retention and the employee experience – and this includes improving employees' financial wellbeing. It should go without saying that employees that are financially stressed are not going to be the most productive, healthy, safe, or loyal members of the workforce.

But there are major considerations to be taken into account by employers when considering introducing on-demand pay systems, among these:

• The potential impact on company cash flow, though this is not an issue for organizations that work with third-party ODP providers
• Providing employee education on the principle that having access to a proportion of their pay on an on-demand basis does not automatically lead to financial wellness. Placing restrictions on the frequency with which an employee can apply for on-demand pay might help employees in their debt management and/or financial budgeting to an extent
• The risks of exposing employee data to financial services companies who might push other loan products.

So which types of employees are more likely to be interested in on-demand pay solutions?

• Younger employees with little or no savings, who are also facing large one-off outgoings, and who are new to financial budgeting
• Part-time and temporary employees, who will continue to represent a growing proportion of the overall workforce in all geographies
• Industries like hospitality and industries that have a high proportion of hourly-paid workers, especially industries with significant amounts of overtime (not having to wait to the end of the month when you have done a lot of overtime and have an immediate financial need is a significant benefit)
• The public, healthcare, and education sectors, which are major employers.

There were some concerns about on-demand payroll expressed by payroll leaders at the event. Among these was a concern that, given many companies have spent decades moving employees away from weekly pay cycles to monthly (U.K.) or two-weekly (U.S.) cycles, and thereby reducing operational payroll costs, is going on-demand a backward move for both employer and employee? However, from the employee's perspective, having access to on-demand pay is likely to be an attractive element in a benefits package.

The pandemic has changed organizations' priorities in terms of their people and operations. And it has thoroughly tested the robust nature of payroll operations, to unprecedented levels. There was a general consensus at the event that there is a continuing need to prioritize agility and automation in global payroll operations.

Nobody should underestimate how essential payroll is, though putting money into the bank accounts of employees in an accurate and timely way is often a thankless task. Payroll processes need to be robust if they are to support new ways of working, and Neeyamo's event was a valuable way to discuss and test thought leadership ideas.

Since the start of the pandemic, company benefits have played an increasingly important role in helping organizations protect the safety, wellness, and health of their employees. This is increasingly the case, not only for physical wellness, but organizations now have greater awareness of mental health and financial wellness impacts on their staff given recent challenges and mass resignations.

2022: a perfect storm for benefits

The dominance of remote/hybrid work environments also opens up new opportunities for benefits functions to offer new benefit types that could be seen as tangible expressions of a company’s culture. Therefore, If employee welfare, attraction, and retention are not top of the list of your key strategic priorities for 2022, they should be. Not only are organizations and HR functions adapting to new ways of working and changing business environments, they are also facing the fact that employees have started to "vote with their feet”, demanding a better work-life balance. We are experiencing the largest wave of mass resignations seen in most of our lifetimes. This is also not helped by the retirement of baby boomers and an aging workforce. 2022 is the year to act, and these challenges also offer a great opportunity for benefits teams to relook at the role they can play in strengthening the resilience of companies and their workforce.

2022 is expected to bring a perfect storm that will drive companies to increase their focus on benefits, creating opportunities to address the importance of benefits and the benefits experience and HR teams should be looking to raise the bar in cascading key messages across management teams. Talent shortages are severe in many industries and the competition for companies to offer diverse and attractive benefits will also put companies and HR teams under pressure.

Benefits functions are in a privileged position to offer personalized support across a company's whole employee base and could become the hidden hero of HR in the coming year.

Launching a major new benefits study

To help shed greater light on this important topic, NelsonHall is launching an educational research study, in conjunction with Empyrean, designed to help benefits plan sponsors and administrators understand the wider impact they can make to help their companies adapt and be more competitive. Part of this research will look at the impact benefits can play in demonstrating, shaping and cementing a strong company culture.

Given the market forces outlined above, NelsonHall will look at how the role of benefits plan sponsors and administrators will change over the next year as the strategic importance of the benefits function grows. As part of the research, NelsonHall will be looking at how the benefits function is adapting and reshaping in the light of the wider business environment.

In particular, the study will research the wider and increasingly strategic role of benefits leaders. Benefits strategy is an increasingly important element within an organization’s wider HR strategy, such that benefits leaders are expected to play more strategic roles within the HR department and become key contributors not just in benefits strategy & design but in the development of talent acquisition, talent retention, and overall HR strategies.

The study will also investigate the changing benefits platform requirements. As benefits teams take on more strategic roles within the organization, platforms will take on an increasing proportion of day-to-day transactional activity, with organizations looking to establish hybrid and AI-driven omnichannel operations. These platforms will also increasingly provide the analytics and AI-driven personalized recommendations and decision support to fine tune benefits programs.

Get involved: join the research survey

We'd love to hear your views. To join the research survey The Changing Role of Strategic Benefits Leaders Survey please share your details here. The survey will be open until 31 January 2022 and all participants will receive our research report containing a detailed analysis of the findings.

The survey results will be announced and discussed across the benefits community at the Empyrean EVOLVE client conference in Nashville, TN, from April 6-8, 2022. For those not able to attend, you can obtain a copy of the research report from the Empyrean site following the event.

About Empyrean

Empyrean is a benefits service organization that recently launched its new brand strategy to address "building culture through benefits". It looks to drive positive workplace cultures by connecting its employees to life-enriching benefits. Empyrean’s new brand message makes a strong connection between the role benefits play in building a company’s culture and positive organizational outcomes tied to total employee health and wellness. The brand strategy reflects Empyrean’s product roadmap, as the company continues to develop and roll out employee-centric technologies and services along with strategic carrier and service partnerships designed to improve employee experiences and strengthen employer brands.

For more information on Empyrean’s brand strategy: https://www.goempyrean.com/empyrean-benefit-solutions-launches-new-brand-messaging/

Part 1 by Pete Tiliakos & Liz Rennie

This is Part 1 of a 2-part blog presenting an analysis of key trends from NelsonHall's HR Technology & Services team. Part 1 looks at the key outsourcing trends around core HR functions, including cloud HR transformation, payroll, and benefits administration services.

Cloud HR Transformation Services

The drive to digital has kept many cloud HR transformation projects on track, despite some large enterprise signings being delayed. The 2020+ HR challenges look different from those in 2019, with organizational challenges related to workforce safety, workforce productivity, security, cost containment alongside deepening cost pressures, and a need to ensure all processes are digital. Pivotal to success is the agility of HR organizations to drive restructures supporting significant market upheavals across so many industries. Adapting to rapidly changing and compliance needs will also be a challenge.

Cloud HR transformation services are adjusting to a FluidWorkLife era, defined by greater people engagement to support fluid, individual work and homelife needs in a consumer-like way – while addressing higher-speed digital deployment through improved use of automation and technology to better manage the pace of business change and industry consolidation.

Outlook:

Key themes and drivers expected from the Cloud HR Transformation Services market in 2021+ include:

• Managing workforce restructuring and HR & payroll compliance: with unprecedented layoffs and furloughs, in contrast to significant growth in industries such as online shipping, couriers, and communications, HR has played a key role in supporting the business through change. Ensuring timely, accurate, compliant payroll was the top operational priority in 2020 and will remain critical moving ahead
• Workplace tools to support workplace change: with employees working from home, a greater focus on worker tracking to support a safe return to work, enabling touchless workplace services, monitoring social distancing interactions, and supporting contact tracing
• Effective employee engagement is table stakes: employees will have diverse needs and individual personal demands, requiring greater HR flexibility, including where employee solutions might need to be co-created. Enabling tools such as HR chat to support improved engagement will increase in importance, plus more regular employee surveys or pulse-checks
• Security is increasingly important, with more cyber-attacks evident during 2020
• Greater resilience through cost improvements, digital processes, and agility are also key to HR delivery models. Priorities are expected to focus on solutions that help make workforces more resilient, including employee health, voluntary benefits, risk, and cost.  Companies will be looking for greater agility for changing business needs. In the light of COVID-related revenue and cash flow challenges across many industries, it is expected there will be a greater focus on delivering longer-term cost improvements.

Payroll Services

This past year has been a stark wake-up call for many organizations and their payroll operations. The effects of the pandemic strained and exposed operating models up and down market, leaving many firms across sectors realizing investments to futureproof payroll operations for greater resiliency can no longer wait.

At the same time, 2020 has been payroll's 'time to shine', with practitioners stepping up to answer the call and keeping workers around the globe paid on time and accurately during arguably one of the most challenging times in recent history, despite the shortfalls in capability.  

On the managed services front, the shift to work from home enabled payroll providers to put their digital technologies to the test, proving out the very solutions they had been proliferating in recent years and urging buyers to focus on: cloud platform adoption, mobile-first design, on-demand payroll capability, predictive analytics, and dynamic integrations that bring it all together seamlessly. Additionally, firms operating in managed payroll services arrangements had much-needed help in quickly accessing reliable data, interpreting and responding to compliance directives and government support programs, and they fundamentally fared better in navigating the unforeseen challenges, reinforcing the value in managed payroll services.

Outlook:

While payroll service provider revenues were negatively impacted by the global economic downturn and subsequent job losses, and buying decisions were put on hold, the appetite for digital payroll solutions and managed services is quite healthy and is escalating as we move into 2021. 

With payroll a critical, core element in the employee experience, global footprints creeping, and compliance risks rapidly intensifying, buyers are keenly focused on payroll as a key area of investment moving ahead, and thus service provider pipelines are healthy, signaling a gradual return to the growth levels experienced before the pandemic. 

Five key themes and drivers expected from the managed payroll services market in 2021+ include:

• Compliance is THE priority: quite possibly the leading driver for managed payroll services adoption today and one that will intensify as we move forward;  buyers will focus on tapping into the tools, localizations, expertise, and global capability that vendors can offer at scale in removing risk and ensuring complete and timely compliance as statutory requirements evolve
• Digitalization up and down the process: no process in the employee lifecycle has been historically more neglected or overlooked than payroll.  Vendors will continue leveraging cloud platforms as the launchpad to enabling deeper digital capabilities with a heavy emphasis on automating the highly manual process through RPA, AI, and ML infusion, inching toward eventual fully autonomous processing. With payroll sitting squarely at the heart of the employee experience and wellness, look for deeper mobile capabilities, expanded use cases for AI/ML, and NLP-enabled virtual assistants that augment users and personalize experiences with guided, predictive insights to drive best practice and data-driven decision making
• On-demand earned wage access will be a game-changer for payroll: if the pandemic taught us anything, it's just how vital and impactful the ability to move earned wages to employees in a timely fashion can be. With the employee experience, engagement, and wellness top of mind for HR leaders, on-demand payroll capability helps with each by empowering employees with greater control and insight over their earnings. Look for the solution to continue its hypergrowth trajectory with adoption led by the U.S. and Canada, but increasing slowly internationally
• Payroll becomes a strategic partner: payroll has long been viewed as a simple processor and cost center, often overlooked in key HR decision-making or strategic decisions. Yet payroll controls one of the most critical processes in the employee lifecycle and houses some of the most underutilized and generally misunderstood data sets in the entire organization. With the continued proliferation and criticality of globally consolidated predictive analytics, and benchmarking capabilities, pared with the advancements in digitalization, payroll has the opportunity to truly shift its focus toward becoming a strategic advisor to the business
• Multi-country deals will escalate: with many MNCs operating on legacy, disparate, and often poorly integrated payroll solutions globally, the appetite for consolidating and modernizing global payroll remains strong, particularly with many firms finding their global operating models ill-equipped to handle the next major disruption. With multi-country payroll solutions able to support 100+ countries on average, look for buyers to tap into vendor offerings that can consolidate, digitalize, and automate payroll globally through a single solution.

Benefits Administration Services

Benefits administration providers have continued to focus on expanding benefits offerings to tailor to specific needs, while also minimizing administration by improving processes and technology. Significant changes in the way of working have also impacted the industry. Over 2020, benefits fairs were managed online, a first for many. As a result of the pandemic, technology is the driving force to innovation, with greater focus on homegrown platforms or through managed acquisition and tighter partnerships to support ongoing changing needs and client needs for greater visibility of data.  

Buyers of benefits programs continue to expect greater flexibility to support change, greater automation, customizations of communications, and improved process efficiencies. 

As government relief packages introduced by most major governments greatly impacted health provision and benefits rules, operations had to adapt quickly to apply these changes. As a result, 2020 was a year of increased operational costs for many benefits administrators.

Outlook:

Key themes and drivers expected from the Benefits Administration Services market in 2021+ include:

• Automation and integration: benefits operations will become more streamlined with greater integrations, minimizing risk and manual interventions
• Health costs are increasing in the medium to long term: costs might have reduced in 2020 due to a lower number of medical claims; a high-cost spike is expected in 2021 due to pent up demand for health services
• Keeping up with relief legislation has been challenging, and more changes are expected in 2021: The dynamic nature of the benefits markets will mean more buyers will look to expert providers for guidance and support and bringing greater agility to support compliance
• Compliance, security, and risk management will have growing importance: especially while more processes moved online and electronically, and as companies capture more data about their employees
• Personalization through AI will grow alongside company ethics and brand as it relates to benefits design. AI will increasingly support benefit recommendation engines; personalization will also increase through more fine-tuned communication tools
• Benefit design will have a growing importance in promoting diversity in workplaces and representing the company brand
• Benefits professionals’ roles will change to become more marketeers to communicate benefit programs and be less about interface/error management and processing
• Industrializing and institutionalizing analytics: increasing use of data to support and evaluate program success, employee engagement, cost management, and drive more informed decision making.

In Part 2, Nikki Edwards will look at trends and the outlook for talent management services, including recruitment and learning services.

Last week I attended the Benefitfocus Seller Place 2020 conference. Benefitfocus has repositioned itself from a software company to a benefits platform provider with solutions focused on engaging and improving the user experience while helping employers and employees make more informed decisions and reduce cost.

Benefitfocus has 25m consumers, serving 150k employers with 15.5m employees, partners with 700 brokers, 144 medical carriers, 50 voluntary suppliers, and has 1,700 associates. The BenefitSAIGE platform processes 42m transactions per week, worth $18bn between BenefitFocus and its ~100 payroll partners with a 99.9% first pass yield. 100% of data is delivered on time during open enrollment and 100% of payroll and enrollment files/data transmitted is encrypted.

Why Benefits Engagement Matters

The importance of engaging employees with benefits for attraction and retention of talent cannot be underestimated. Benefitfocus presented data showing that there is a 19.3% employee turnover rate in the U.S. Employees are spending more on benefits than all other expenses except for home mortgages and car payments, yet they are getting less value. Since 2009, medical costs are up 54%, deductibles up 162%, while worker earnings are up just 20%, and 74% of employees are confused by their benefits options. In 2018, $3.65 trillion was spent in the U.S. on annual health costs, 20% of the GDP. Family costs have increased 2x faster than wages in the last decade, and 64% have delayed receiving care due to the costs involved.

BenefitSAIGE Platform Notifications

Benefitfocus has made significant investments in its BenefitsSAIGE platform, including the use of AI. BenefitSAIGE is event-driven: instead of benefits being an annual event, you can enroll and change benefits when you need to. BenefitSAIGE engages with participants throughout the year, including participants receiving a proactive notification when something changes. Every person who comes to the BenefitSAIGE platform receives push messages on a weekly basis that will help them to make informed decisions and save cost. A dedicated content manager helps to ensure compelling content is delivered throughout the year. A few examples of notifications are:

• If an employee gets married, they will receive a message (email or text) on the top 5 things newly married couples needs to do regarding benefits
• If an employee moves, their auto insurance may change, so BenefitSAIGE will notify the employee to review insurance products that the platform recommends
• Personal reminders such as ‘today is your core strength training day’ or ‘it’s time for your doctor’s appointment today’
• Cost-saving notifications such as ‘the prescription you just filled can be $3 cheaper at the CVS pharmacy near you’.

Examples of Benefits Achieved

The following are examples of the type of benefits that can be achieved using the BenefitSAIGE platform:

• Ability to make a company HR admin a super-hero! For example, in looking at medical claims and trying to get a handle on costs, with one click you can get the top 10 categories driving cost and the dollar amount spent on (say) cardiovascular, with the number of claims
• ER costs have risen dramatically in the last 10 years. As such, you can identify the types of claims and diagnosis appropriate for alternative care. An example was given of a Benefitfocus client with high ER costs that implemented telemedicine communication and realized a $50k saving with a potential of $400k over 2 years
• Ability to run a report on zero cost claimants that are never going to the doctor (even for preventative physicals) and deliver messages to inform them they are covered for no cost for preventative annual visits and/or incentivize them to open a Health Savings Account and then see the impact it has
• A midsize employer with a lot of non-compliant prescription diabetics created member populations to track strategy effectiveness and realized a 24% increase in medication compliance, getting employees the right medication, and increasing employee engagement
• A large employer who was seeing double-digit pharma cost increases y/y, analyzed data and found improper billing/fraud and was able to reduce y/y spend by ~10%
• Open enrollment daily insights to HR admins including number of log-ins, elections, comparison of plans selected vs. last year, number and types of questions asked; allowing HR admins to proactively communicate anything that needs to be clarified
• Individuals enrolling in benefits are given insights; for example, ‘We recommend 2019 HDHP Premier as your medical plan, which can save you $3,822 on premiums compared to the PPO standard plan’. It will then provide further information on Total Risk and Savings Opportunity.

2020 Roadmap

Benefitfocus’ planned enhancements for 2020 include:

• Integrated case management capability to allow employees and employers to have full access to case history
• Email notifications will incorporate employer branding, including client logo and email styles
• In Q1 2020, in addition to email, text notifications will be made on mobile devices
• Increasing the number of broker partners from 700 to 1,000.

Outlook

Benefitfocus’ emphasis on using its BenefitSAIGE platform to provide proactive communication throughout the year gives it a unique position as a benefits partner in helping employers, employees, brokers and carriers to make more informed decisions, reduce company and employee costs, and improve engagement.

In terms of challenges, Benefitfocus needs to ensure that its notifications continue to add value and not lead to communication overload. But that can be overcome if the messages are short and succinct and help to make better decisions while saving money. Also, while there is merit in being a premier platform provider, Benefitfocus should let it be known that they are still a service provider with a Benefits Center and specialists able to answer questions on the phone when needed.

NelsonHall expects to see double-digit growth in Benefitfocus products bought and revenue generated in 2020.

It has been 10 months since the announcement that Aon was divesting the businesses within its Outsourcing segment to private equity firm Blackstone, and 6 months since Alight was formally launched as a new company, which makes it an ideal time to review its progress and where it is headed in 2018.

By all accounts, it was a smooth transition, with client retention remaining high. But more importantly, the separation allowed the company to create a new identity, departing from its roots as the administrative arm of a much larger global professional services firm to reflect a more modern approach that emphasizes a consultative partnership with its clients.

The consultative partnership approach is becoming increasingly important as more and more organizations seek solutions that go beyond cost reduction to those aimed at solving larger business problems, such as increasing employee engagement and helping employees optimize their benefit selections. With market expectations changing, the line between consulting and administration is blurring, so it’s imperative for suppliers to adapt in order to meet demand for this higher level of service. While Alight is still at the initial phase of its journey to be an impactful advisor, its direction on this front is clear.

Alight’s other key priorities for 2018 include innovation with both its services and technology, as well as creating an engaging user experience, which are better viewed within the context of its two core businesses.

HR & Financial Solutions

Its HR and financial solutions segment is a mixture of hosted legacy HR BPO deals that it continues to support, and its newer cloud-based HR and financial services offering, which includes advisory services, deployment services, AMS support, and HR BPaaS support.

In 2017, Alight experienced continual expansion for its cloud services, including deployments for both Workday HCM and Workday Financials. One of the more significant trends in this business is the company’s growth internationally, including in Europe (largely the Nordics) and APAC.

Over the next year, growth is expected to continue in all regions, with APAC slated to be the fastest growing. More importantly, Alight intends to expand its service support, specifically focusing on services for the mid-market as well as a co-sourced and fully outsourced payroll offering.

Health & Wealth Solutions

Alight’s health and wealth solutions segment contains its legacy benefits administration service offerings, including various H&W services as well as DC and DB administration.

Highlights from 2017 include launching its unified data platform, which aggregates data from multiple sources and will be further enhanced to provide a consumer-centric view of each individual participant served.

2018 investments will focus on expanding the digital user experience, including releasing an enhanced mobile app that will have capabilities for annual enrollment. It will also launch a new integrated partner network on UPoint that will include seven providers in Q1 2018.

It’s clear that Alight’s 2018 vision will include a heavy emphasis on technological developments, especially with the front-end user experience, which is pivotal to address wider business issues as well as expectations from an increasingly diverse workforce. 

In my last blog, I laid out 2018 predictions for two areas of talent management: recruiting and learning (see here). This blog looks at what to expect over the next year for payroll services and benefits administration. Trending topics in these areas over the last year included cloud, compliance, configuration, and consumerization.

Payroll

The payroll landscape has shifted away from traditional bureau payroll services towards technology-based managed payroll services. Presently, ~80% of payroll contracts are delivered on cloud systems, but it’s the future developments of these platforms that will take center stage over the next year.

2018 developments will focus on enablers to make the move to cloud faster, simpler, and more manageable, especially for SMEs where momentum for cloud payroll systems will take off. Also, expect to see additional offerings that facilitate integration to external systems such as ADP’s Global Cloud Connect and CloudPay’s Cloud Connect 2.0.

Initiatives around driving transparency for both the organization as well as its employees will be top of mind in 2018, similar to ADP’s recently launched NextGen Payroll engine, which was designed and built with the user in mind. A greater level of transparency in payroll will also facilitate optimization of benefit choices.

Over the last year, the use of RPA for repetitive payroll tasks such as data processing and reconciliation has become quite common. In 2018, suppliers will seek to leverage machine learning and cognitive capabilities to differentiate themselves. Another significant advancement in 2018 will be around launching chatbots to create a conversational user experience in real-time.

In 2018, the global payroll market will grow by ~4%, with multi-country activity increasing 3.5 times faster than single-country contracts. In fact, over the last year, several payroll vendors geared up for global expansion, including NGA HR who launched a managed payroll offering in Africa, Ceridian who expanded its payroll capabilities in Europe, and activepayroll who established a presence in Germany. 

Benefits administration

2017 marked the end of the consumerization era in benefits administration (which emphasized a redesign of the user experience to incorporate consumer shopping trends in the enrollment experience, as well as the addition of voluntary benefits), to make way for the benefits optimization era.

The concept of optimization is in its infancy, but that will change over the next year and beyond. Currently, optimization tools in the market tend to be narrow, with most focused on “financial wellness.” The theme of financial wellness has been important for the last few years and continues to expand to a broad range of topics, and it will only get more personalized over time. To date, “health and wellness” optimization tools have only begun to scratch the surface, and will be a big area of development over the next year. 

In 2018, buying patterns for benefits administration services will focus on best-of-breed suppliers, making partnerships all the more important to bridge the gap in tying services together to a deliver a cohesive experience. Beyond partnering, tier one vendors will turn their attention towards data aggregation, like Fidelity Investment’s data sharing solution, Access, which facilitates aggregation of financial information across third-party websites and applications. In general, centralizing and aggregating data will be critical in next generation benefits administration services.

One final point of interest to watch for in 2018 is the resurgence of multi-process HR services deals, which have been revived by the adoption of cloud-based HCM systems, including SAP SuccessFactors and Workday HCM. However, unlike the legacy deals, the new wave of activity will be focused on narrow HR BPaaS services, with HR administration, payroll, and benefits support as the most common bundle. In addition, these contracts will likely include ongoing AMS support.

2017 did not disappoint and, based on current predictions, 2018 will be another exciting year in the HR services market.  

Relative to other HR services, the application of intelligent automation in benefits administration is lagging, but is slowly making progress.  With respect to RPA, Conduent and Alight are among the first movers, with both using bots for manual calculations in pension administration. In addition, Alight has deployed bots for low-level transactional work that is typically offshored, and in 2016, Conduent launched an intelligent technology group, which is focusing on leveraging RPA to drive improvement across its entire HR services business.

Fast followers currently with initiatives around RPA include other tier one providers.  For example:

• ADP has partnered with Symphony to roll out its first RPA program for 2018 annual enrollment, which will include four RPA processes, with eight robots live
• Fidelity will incorporate RPA in various processes, including reducing the implementation time for HSAs
• Mercer will have ten robots in its operation by the end of the year and will launch more in 2018.

In addition to RPA, the use of chatbots and automated virtual assistants is also increasing in the benefits market. For example:

• Alight is currently leveraging an IVA solution within its DB and DC administration business that includes ~425 questions, and will launch a chatbot for its H&W services business in H1 2018 
• Businessolver launched its chatbot, Sofia, in time for 2018 annual H&W enrollment
• Mercer recently launched a chatbot for internal use to assist its client-serving teams with benefits administration inquiries in Asia
• Fidelity launched an automated virtual assistant in its retail business earlier this year to help users find general information on the Fidelity.com website
• ADP and Conduent are actively seeking partners to deploy chatbots
• Morneau Shepell is considering the use of an automated virtual assistant in its EAP business for service-type calls, such as changing appointments.  

Both Alight and Businessolver’s chatbots are equipped with machine learning, allowing for easy analysis so that providers can quickly understand what information needs to be added to the chatbot.  Outside of chatbots, the use of machine learning in benefits administration is in its infancy. But, it’s only a matter of time until the use of all the intelligent automation tools becomes the norm.

Over the last few years, developments around the participant experience for benefits administration services have been focused on helping employees become more effective consumers as they make their benefit selections (the “consumerization” era). In 2016, the next stage of evolution of the participant experience emerged as suppliers shifted their focus to utilization (the “benefits optimization” era).  

NelsonHall’s latest market analysis study of the North American benefits administration market identifies three optimization approaches that are beginning to take shape:

• “Health and wellness” optimization: ensuring participants are not over-insured in major medical and/or underinsured in other ancillary benefit products
• “Financial wellness” optimization: helping participants with financial issues beyond retirement preparedness, such as budgeting, debt management, saving for emergencies, etc.
• “Health & wealth” optimization: ensuring participants have the best health coverage that they can afford while also adequately saving for retirement.

To date, providers that have started initiatives around benefits optimization have tended to focus on narrow optimization approaches, i.e. “health and wellness” and “financial wellness”, based on the vendor’s specific core strength. Some examples include:

• Mercer leverages a ‘best match’ tool, and once a participant makes a selection, other options are then brought forward to fill in gaps in coverage
• Empyrean’s recommendation tool bundles different packages of products together that make sense for the individual based on the participant’s profile
• Fidelity Investments launched Plan for Life Financial Wellness as well as a student debt program that includes a student debt management tool for DC administration participants
• Empower Retirement partnered with DoubleNet to help DC administration participants pay bills, pay down debt, and save for emergencies.

Optimizations around the broad “health & wealth” approach are currently immature, with several suppliers including Alight, Conduent, and ADP planning to launch initiatives around this approach in the future.

With consumer-shopping concepts now table stakes for the participant experience, suppliers need to up their game, since benefits optimization will be the new standard for the participant experience. In addition to delivering on the narrow optimization approaches in the near future, vendors need to turn their attention towards the broader “health & wealth” approach for a holistic view. Separately, providers also need to determine a strategy for how they will deliver a “hyper-personalized” participant experience over the next three years.  

The gig economy has been a recent trending topic. While the concept of gig workers is nothing new, the attention being paid to it is, especially since this is an area whose growth has been facilitated by the digital marketplace. Here, I take a quick look at the challenges gig workers present for HR.

Gig workers present a challenge on several fronts, especially when it comes to managing the workforce, since contingent workers are often managed separately from permanent employees. In fact, ADP research finds that only ~40% of organizations report that HR owns all talent (i.e. permanent and contingent workers). And the use of contingent workers by organizations will only increase in the future, especially within certain occupations such as IT, media, and communications.

To support this growing trend, some MSP vendors are offering blended services with RPO, essentially moving towards a total talent management model. For example, Alexander Mann Solutions provides this blended model to an energy client, supporting 500 contingent workers and 3k permanent employees per annum.

But there are other concerns with the gig economy, specifically around the financial wellness of contingent workers. Over the last five years, benefits administration vendors have been launching initiatives focused on providing educational and decision-support tools to empower participants to make good financial decisions. More recent developments focus on holistic financial wellness offerings that extend beyond planning for retirement, and incorporate assistance around student loan debt management, budgeting for college, and saving for emergencies. Unfortunately, however, contingent workers do not typically receive employer-paid benefits.

Current estimates of the size of the gig economy vary greatly ranging from ~10% to ~35% of the U.S. workforce. And it is important to note that many gig workers also have traditional full-time jobs (i.e. hybrid gig workers), which will provide them access to employer benefits, including retirement plans and health insurance, as well as annual and sick leave. But does this represent enough gig workers to the point that HR shouldn’t be concerned? Findings from a recent study by Prudential suggest not.

The Prudential study, Gig Workers in America: Profiles, Mindsets and Financial Wellness, found that 16% of pure gig-only workers and 25% of hybrid gig workers have assets in an employer-sponsored retirement plan compared to 52% of permanent workers. And when it comes to some voluntary benefits such as disability insurance, the stats are even worse for contingent workers.

It’s clear that employers will continue to leverage gig workers. Therefore, HR suppliers need to first recognize the issues that this class of workers creates across the HR lifecycle, from hiring to managing talent, to assistance with financial security, and then create solutions that address the blind spots and gaps in order to optimize HR.

This is the second of two articles on the multi-process HR BPS market. NelsonHall’s latest market analysis report on the multi-process HR BPS market recognizes two types of strategies adopted by vendors taking a modern approach to multi-process HR services: intelligent technologies and cloud-based HR services. Here, I take a quick look at both strategies.

Intelligent technologies

The intelligent technologies approach to multi-process HR services emphasizes the use of automation tools, AI, and advanced analytics to enhance multi-process HR BPS services. Services in scope within these deals tend to include workforce administration, payroll, and often administrative functions around talent management processes, as well as analytics, leveraging on-premise or hybrid technology arrangements.

The top drivers for buyers under the intelligent technologies approach include:

• Improving process controls and driving efficiency
• Streamlining HR processes through automation to reduce process duplication
• Obtaining greater transparency and visibility through advanced analytics.

The biggest inhibitors and challenges with this approach include the following:

• Often, organizations are looking to address larger transformational issues first, including moving to a cloud-based HCM platform, or at least consolidating the number of systems used
• The challenge of demonstrating how intelligent technologies will generate cost savings over the life of the contract; this includes introducing continuous technological improvements that reduce costs beyond the initial year.

To succeed, suppliers must look to continuously develop intelligent technologies, especially machine learning, for different HR processes, and be able to deploy intelligent technologies for on-premise systems (since there will be a certain proportion of organizations that will delay the adoption of cloud platforms).

Cloud-based HR services

The cloud-based approach to multi-process HR services, on the other hand, emphasizes support around broader offerings, such as HR SaaS implementation and ongoing AMS services, in addition to multi-process HR BPS services. The service scope of these deals includes workforce administration and payroll, with an increasing focus on managed benefits, and can include deployment and/or ongoing release management support. The key distinction here is that the underlying technology is 100% cloud-based, including for core HR and payroll.  

Buyers of this approach are adopting it because they are seeking a technology transformation to a more manageable model and also lack the time, skills, or expertise to operate internally in a HR cloud environment.

Impediments to adopting this approach include a desire to ride out previous technology investments, and also the impression that cloud HR software is so intuitive that organizations can operate it internally as the ‘be-all and end-all’ solution. Other issues with the cloud-based HR services approach include ensuring integration with other HR systems.  

Under this approach, it is imperative for vendors to create fast and secure data sharing capabilities with third party applications for seamless integration, with an eye on incorporating intelligent technologies, particularly chatbots, in the near future.

While many providers tend to hone capability in one of these areas, ancillary developments are often made in the other due to competing market demands for cloud HR technology adoption and improved service quality.

Click here for the first article in this two part series: State of the Multi-Process HR Services Market

As H1 2017 comes to a close, it’s a good time to reflect on recent key activity and where the market is headed for the rest of the year and beyond. Here, I round up what’s trending now in payroll, benefits administration, recruitment, and learning.

Payroll

The most common theme in the payroll market is global and multi-country activity. NelsonHall estimates that multi-country payroll will grow 4x the rate of single-country payroll services through 2020, accounting for nearly a quarter of the market. Supporting this prediction were several new contract awards, including Neeyamo signing a contract with a global CPG company headquartered in the U.K., with payroll delivery extending to ~60 countries across six continents; and Ramco signing a multi-million dollar HCM and global payroll contract with Panasonic Group for ~20k employees across 21 entities.

In anticipation of the multi-country trend, some regional payroll providers made acquisitions to increase their presence and expand their geographic footprint. For example, Nordic-based Zalaris acquired Sumarum AG to expand its capabilities in Germany to better serve MNCs, and its geographic expansion plans aren’t ending there. Australia-based Ascender was also on a roll, acquiring NGA HR’s Australia and New Zealand payroll business, including NGA’s proprietary Preceda and PS Enterprise platforms, as well as Japan-based Workcloud; both acquisitions help to facilitate Ascender’s 2020 strategy to be a leader in payroll in the APAC region.

Benefits Administration

In benefits administration, the focus is centered on the employee experience, including education, integration, and connectivity. A recent survey by T. Rowe Price found that plan sponsors believe they have a duty to help prepare their employees for retirement, and that ~48% have a metric to track the retirement preparedness of employees. Currently, many DC administration vendors have implemented initiatives focused on education to ensure retirement readiness, and these programs are now expanding to address other financial issues such as budgeting and student loan debt management, with targeted messaging for participants based on their situation and goals. The objective will continue to push towards total financial wellness for participants throughout their lives.

To date, initiatives around integrating health and wealth have largely focused on offering retirement plan participants access to HSAs to help individuals prepare for healthcare expenses in retirement.  Since 2010, Fidelity’s HSA administration offering has experienced double-digit growth y/y, and over an 18 month period, Fidelity added ~65 new employer HSA clients, representing ~181k participants.

Empower Retirement is the latest plan administrator to add such an offering, partnering with Optum to launch The Empower Health Savings Account, which includes:

• Access to investment advice
• Health plan selection and enrollment
• Retirement plan management
• Inclusion of wellness programs and health savings account management.

The next phase of integrating health and wealth together will likely focus on the annual enrollment process, and include helping participants view the impact of their choices so better decisions about trade-offs can be made. 

Finally, a big part of the employee experience is providing access to benefits information on mobile devices and increasing functionality on mobile devices. In H1, Businessolver joined other vendors with the launch of its mobile app, MyChoice, which allows users to:

• View their current and future benefits elections for medical, dental, vision, voluntary, and supplemental plans
• View medical savings account balances
• Upload their medical ID cards and benefit documents for dependent verification
• Receive reminders via push-alerts
• Chat with a representative to answer general benefits questions.

Recruitment

In recruitment, the focus is shifting towards total workforce services by offering blended RPO and MSP services to organizations. Traditionally, services for the contingent workforce were offered separately from RPO. In anticipation of demand for total talent management services, supplier strategies vary, from adding MSP services to reorganizing portfolios (as was the case for TrueBlue, who transitioned its MSP business from Staff Management | SMX to PeopleScout).

Recruitment continues to be an area for strong growth, as evidenced by delivery expansions in H1, including:

• Allegis Global Solutions opening a recruitment services delivery center in central Birmingham, U.K.
• Alexander Mann Solutions opening an expanded global client service center in Shanghai
• Pontoon opening a new office in Bangalore
• Korn Ferry Futurestep opening a European talent delivery center in Manchester, U.K.

Learning

Not only is there increasing pressure to making training programs more effective, many corporate L&D departments are facing mounting pressure to demonstrate the impact of training on the bottom line. Many vendors have responded by organizing learning BPS offerings around specific performance improvement objectives, including:

• Strategic transformation
• Revenue and competency
• Compliance
• Cost reduction
• Learner engagement.

Learning developments will consequently be made depending on a vendor’s core performance objective focus. For example, with respect to the learner engagement objective, Raytheon Professional Services has built a number of electronic performance support systems (EPSS) for clients to improve performance and productivity by coaching employees through tasks.

Equifax Workforce Solutions’ 2017 client forum was themed “Expanding Horizons”, and here I take a quick look at three areas in which Equifax is expanding its HR solutions. 

Expanding Verifications Business

Equifax’s verification services business is expanding beyond the U.S., launching first in Canada, followed by the U.K., and then Australia. Currently, the company’s U.S. income and employment verifications are sourced from The Work Number, and through its multi-country expansion plan, Equifax will have the largest global database of income and employment information.

Workforce Analytics

Equifax is also using big data to provide critical workforce insights, such as tenure and turnover of new hires. This information can help organizations mitigate costs associated with new hires, especially when coupled with Equifax’s compliance center.  

ACA Subsidy Management

It’s impossible to predict the possible scenarios of ACA under the new U.S. government administration. While change is certain, the employer provision, and more importantly penalties, remain intact, so compliance is paramount.

To recap, the employer mandates require organizations with 50 or more full-time employees (i.e. employees working on average at least 30 hours per week) to offer health coverage that provides “minimum value” and is “affordable” to at least 95% of their FTEs, or else they are liable to a penalty. 2017 penalties are either $2,260 per FTE or $3,390 per FTE where the employee is not offered coverage.

In addition, employers must comply with 6055/6056 reporting requirements. Failure to file or filing incorrect statements will result in additional penalties of $260 per form, capped at $3.1m.

To facilitate legislation, many suppliers have launched offerings around eligibility tracking and IRS form fulfillment, including 1095C distribution as well as 6055/6056 reporting. However, the subsidy provision also remains in place, and will likely present the greatest issues for organizations.

Last year, Equifax expanded its ACA offering by launching a subsidy management service to assist employers as they receive subsidy notifications for failure to comply with the ACA employer mandate, and subsequent appeals process. The offering includes preliminary case analysis, consultation, end-to-end case management, and outcome-based reporting.

In 2016, the Centers for Medicare & Medicaid Services (CMS) sent out ~450k subsidy notifications, and Equifax received ~1.7k and filed ~580 appeals on behalf of ~150 clients. Approximately 62% of the appeals yielded a favorable determination.  

To date, there is no guidance about the agenda for 2017 regarding subsidy notifications. However, organizations need to understand the penalty exposure associated with subsidies as well as the challenges of appealing subsidy notices.

The 2017 penalty under 4980(a) is $188.33 per month per employee for all employees, and the penalty under 4980(b) is $282.50 per month per subsidized employee. Therefore, non-compliance can result in a massive penalty for some organizations.

It’s important to note that an appeal will not be necessary for every subsidy notice received, but employers should be ready to appeal if they did offer coverage to their full-time employees. Employers will have 90 days to file their appeal. The biggest challenge for organizations during the appeals process will be to gather all the documents that support the appeal in time. On average, each appeal response is between 30 and 80 pages, and consumes several hours, which is why services like Equifax’s are very valuable, saving time for HR and benefits personnel to focus on more strategic activities.

ADP’s CEO Carlos Rodriguez began the company’s annual client conference, Meeting of the Minds, by talking about unprecedented challenges faced, including global talent needs, growing compliance burdens, and rising expectations. And though perhaps not the most original of messages, Rodriguez singled out service as the core differentiator that enables ADP to deliver positive impact on its clients’ business and that differentiates it from software companies. Here I take a look at how ADP’s focus on service as a differentiator cuts across several lines of business.

ADP Comprehensive Outsourcing Services (COS)

COS provides a full range of integrated HR services to clients. Some recent service highlights include:

• With clients using on average ~3 ADP services, an effective governance team process is essential. ADP has taken its operational reviews to the next level, and its value proposition includes 6-month interval reviews to make sure processes are optimized and ROI expectations are met
• Adoption of mobile across all clients has resulted in a reduction of paycheck calls by 14%
• Benefits obtained for a new COS security client included change management workshops and detailed plans to manage organizational change, communication, and people strategy. Plus, process optimization and cost reduction (including pay group consolidation, pay frequency change, go green, and paycard).

ADP DataCloud

Predictive analytics, including Predictive Turnover Probability, are delivering insights including:

• Competitiveness: How much future voluntary turnover might my organization have, relative to others in my industry?
• Hidden Drivers: What combinations of factors are contributing to the likelihood of employees leaving, so I can take action?
• Hotspots: Where are the likely areas of highest voluntary turnover in my organization – within jobs, locations, or teams?
• At-Risk People: Who are the high- and medium-risk employees I need to work to retain?

ADP RPO

Growing from 90 clients in 2015 to 114 today, the majority of new recruitment process outsourcing (RPO) clients are first-time adopters. One of ADP’s competitive advantages is its AIRS Recruiter Training provided internally to ADP staff (who are required to be re-certified every year) and also to clients (for whom 750 classes are held annually, with 10,500 people trained, and 3,600 certified).

2017 investments include:

• Global expansion and capability building in EMEA, APAC and LATAM to support growing U.S. multi-national corporations
• Enhanced RPO analytics and DataCloud Integration, including linking candidate profile data to retention and performance.

Mobile

ADP has 10m+ mobile users, providing capability that includes:

• Accessing and printing pay & W2 statements, access to categorized pay reports, setup of direct deposit, and comparison of pay statements
• Tracking time and timesheet approvals, view, request and approve of time off
• Checking 401k account balances, viewing account performance, and changing contribution rate or account allocation.

Benefits Administration

Providing Benefits Administration for 1 in every 17 employees in the U.S. and 9.4m participants, ADP receives ~850k calls annually to its service center, and first-time call resolution is 90%. Recent client case studies include:

• Upon automating Benefits Administration for its client Areas (including open enrollment), errors were reduced by ~75%, and benefits enrollment was reduced from 2 months to 2 weeks. Client feedback was that this was a smooth experience, the process being intuitive and easy to understand (http://bit.ly/2lB7fBK)
• Sumitomo Electric Wiring Systems turned to ADP for ACA Compliance and automating open enrollment. Feedback from the Corporate Compensation and Benefits Administrator included acknowledgement of ADP’s customer service expertise (http://bit.ly/2hirs9u).

The importance of service

The importance of customer service is hardly a new theme, but it’s worth reflecting on just how much it makes a difference. Consider these statistics:

• Most customers make their decisions on who they will buy from based on service as the most important criterion
• 3 in 5 Americans (59%) would try a new brand or company for a better service experience
• The probability of selling to a new prospect is ~15%. The probability of selling to an existing customer is ~65%
• It is 6.5 times more expensive to acquire a new customer than it is to keep a current one
• 91% of unhappy customers will not willingly do business with you again.

ADP clearly grasps this, and is committed to improved customer service and experience as a core differentiator across its HR business lines.

Principal issues & operational priorities

Some of the more prominent issues and operational priorities cited by respondents included the following:

• Compliance with legislation, including ACA requirements
• Continuing to drive costs down
• Integration with other benefits offered and other partners
• Improving the employee experience, including the right balance to meet the needs of a diverse workforce, which includes Millennials, Gen Xers, and Baby Boomers, whose preferences for self-service vary
• Seeking additional alternatives, such as exchanges, as the benefits space changes.

These issues and priorities directly impacted the drivers and benefits organizations were seeking to obtain from outsourcing benefits administration services.

Drivers for outsourcing benefits administration

Around a quarter (26%) of respondents were seeking an improved technology solution when outsourcing benefits administration services, which for some organizations meant a more reliable system, for others a more dynamic system, and in some cases a single easy access portal.  

The next highest objective organizations were striving to obtain by outsourcing benefits administration services was a seamless and streamlined experience for both HR managers as well as employees. This was closely followed by respondents seeking lower costs and better pricing.

Other reasons cited by organizations included improving quality, access to expertise and best practices, implementing automation, and seeking standardization.

Top vendor selection criteria

Approximately 30% of respondents made their decision on which supplier to use based on the vendor’s ability to demonstrate their knowledge and expertise, or as one organization put it, “they brought really good people to the table who were able to answer questions on the spot, which really stood out to our team.“

Next to expertise, vendors were expected to have an impressive technology platform, as well as competitive pricing.

Current satisfaction levels

Current satisfaction levels respondents derived from benefits administration services show that there is room for improvement, and that compliance is the number one area vendors should focus on over the next few years. 

While cost savings are constantly cited as an organizational issue and top driver, driving standardization and self-service will rise in importance to organizations over the next three years.

Areas for improvement

Respondents cited many areas vendors can improve on to meet future requirements, with the top one relating to more integration and/or business development with other key suppliers to create a more cohesive and holistic view. Other areas cited for improvement included:

• Flexibility and responsiveness
• Accountability and close controls
• Reporting capabilities (e.g. making reports more intuitive, consistent, and timely)
• Availability of resources (especially during crunch times to meet deadlines).

NelsonHall’s NEAT vendor assessments look in detail at vendors’ ability to deliver immediate benefits to their clients, as well as their ability to meet future client requirements, and assist strategic sourcing managers in assessing vendor capability while cutting the time and cost associated with their sourcing projects. To find out more, contact Guy Saunders.

Last week Aon Hewitt announced that it has signed a definitive agreement to sell nearly all the businesses within its Outsourcing segment (including benefits administration, HR BPO, and Workday cloud HR services) to Blackstone. Initially, it may appear that this is a step backwards from some of its prior acquisitions, including Hewitt in 2010 for benefits administration, Exult in 2004 for HR BPO, and OmniPoint in 2012 for Workday services. However, the separation will be highly beneficial as the new entity will be a pure play, focusing on operational HR administration activities.

There are a few nuisances with the sale, since some benefits businesses will be retained by Aon Hewitt, including DBCalc and its private exchange for active employees and retirees. The key with both of these offerings is their tight integration with businesses in Aon Hewitt’s Consulting segment. For example, DBCalc is typically bundled with actuarial services.

The private exchange business, on the other hand, will essentially straddle both organizations, with Aon Hewitt retaining the front-end architecture and design and associated work around procuring carriers, plan details, brokering, etc., and Blackstone taking over the back-end administration, technology, and call center support services.

In addition, some U.K. and Canadian benefits administration businesses will be retained by Aon Hewitt; like DBCalc, these businesses are tightly integrated with consulting services, and make up a small portion of the overall portfolio. 

Although not technically operating under the Outsourcing segment, it’s worth noting that Aon’s global benefits business, including brokerage and consulting services, will not be part of the sale.

With the remaining Aon Hewitt focusing on advisory services, the two companies will continue to have a working relationship, especially with respect to the large market, but there will not be an exclusive partnership in place. 

More importantly, the separation will allow each entity to make targeted investments in their core capabilities, resulting in faster innovation overall. In the short-term, the roadmap for each business being sold will remain intact; for example, the current emphasis of benefits administration is on improving the participant experience, which includes combining health and wealth together, as well as driving self-service and enhancing the customer experience. With respect to the Workday business, the key objective is to provide a flexible and modular offering around Workday HCM and Workday Financial Management.

From Blackstone’s perspective, acquiring Aon Hewitt’s Workday business diversifies its HCM technology holdings, following its minority investment in Kronos in 2014.

The deal, for a cash consideration of $4.3bn at closing and additional consideration of up to $500m based on future performance, is scheduled to close in 60 days, with a new company name to follow.

Following several years of growth, the HR outsourcing market continues to ride the crest of the wave, and is gearing up for a prosperous 2017 following investments across all service lines. We will shortly be publishing an in-depth blog on HRO predictions for 2017, but first I take a quick look at what happened in 2016 to lay the foundations for things to come, specifically in payroll services, benefits administration, RPO, learning services, and cloud-based HR.

Payroll Services: HCM Integration & Multi-Country Expansion

Highlights in the payroll market in 2016 included an emphasis on integrating payroll systems with HCM software, which is especially important when it comes to multi-country payroll, an area targeted for huge growth over the next three years. In anticipation of multi-country demand, vendors have continued to expand their payroll capabilities, with ADP’s payroll services now extending to ~111 countries, and NGA HR launching a payroll offering across 33 LATAM countries.

Other 2016 milestones reached in payroll services include Paychex exceeding 1m worksite employees serviced across its payroll and PEO offerings, and OneSource Virtual (OSV) exceeding 500 clients, while maintaining a client satisfaction rating of 98%.

Benefits Administration: Private Exchange Momentum

Private exchanges continued to gain momentum over the last year. Fidelity investments expanded its PIX, focused on SMBs, beyond Massachusetts and New York to Colorado and California, and Morneau Shepell launched a retiree PIX in Canada, adding 3M Canada as its first client. Vendor priorities have been focused on integrating voluntary benefits into the exchanges as well as within traditional H&W administration offerings.

Private exchanges are growing at 6% CAAGR through 2020, and Willis Towers Watson, with ~20% market share, is gearing up to capitalize on the growth in 2017 after recently expanding its delivery center in Arizona, to which it will continue to add headcount over the next year.  

With respect to DC administration, Fidelity enjoyed another successful year, adding $65bn in new DC plan sales across ~1.3k employer clients in H1 alone. In addition, as of mid-year, Fidelity already had another $14bn in commitments for 2017.

Benefits administration acquisitions really heated up in H2, with Mercer making some key purchases, including Pillar Administration in Australia (which now makes it the largest superannuation provider in the country) and Thomsons Online Benefits, adding its global cloud-based benefits technology platform, Darwin.

RPO: M&A Hotspot

There were ~25 HRO acquisitions in 2016, ~40% of which were focused on RPO. Many of the acquisitions focused on expanding or strengthening geographic capabilities, especially for Randstad who acquired Penna in the U.K., Obiettivo in Italy, Careo Group in Japan, and BMC in the Netherlands.  

And, while the U.S. and the U.K. markets are the most active for RPO, emerging markets in APAC and LATAM have high growth potential over the next few years.  

Learning Services: Shift to Performance Targeting

The most significant change in the learning services market is the shift away from a transactional approach that pushes a catalog of service offerings towards an approach that leads with targeting performance objectives. On the backend, automation and analytics are key components of the performance-centric approach.  

Trending themes by learning function include the following:

• Content: content curation services
• Delivery: digital modalities
• Administration: RPA
• Technology: cloud-based Learning Management Systems.

Cloud-based HR Services: Focus on Rapid Deployment

The cloud-based HR services market, including cloud consulting, implementation, AMS support, and HR BPaaS, took 2016 by storm. Key priorities were focused on launching guided implementation tools for rapid deployments, for example:

• NGA HR launched NGA FastTrack to rapidly deploy SAP SuccessFactors
• Ceridian launched Dayforce Activate, which shortens the implementation lifecycle to provide clients with a faster ROI
• Neeyamo launched Rapid Deployment for SAP SuccessFactors, which allows go-live to be achieved in 21 days
• Aon Hewitt launched a rapid deployment offering for mid-market organizations (1.5k-7k employees) who are migrating to Workday from a payroll service bureau provider, activating Workday core HR, U.S. absence, U.S. benefits, and U.S. payroll, including payroll settlement, check print, garnishment admin, and tax filing services in ~5 months.

Other initiatives were focused on ramping up delivery capabilities, with Zalaris opening a COE for SAP SuccessFactors in the Nordics, OSV opening a center in Ireland to provide support around Workday, and Neeyamo launching a SuccessFactors Employee Central service center.

All cloud-based platform providers, including SAP SuccessFactors, Workday, Oracle, ADP, Ceridian, and Ultimate have robust pipelines and roadmaps for continued innovation, making this one of the key areas to follow in 2017.

In the third and final blog in the series examining the benefits administration market, I take a quick look at what health & welfare (H&W) services vendors have done recently to improve the participant experience.

Historically, choice within employer-sponsored health plans has been limited, and the need to provide an engaging participant experience was non-existent. Employers’ attempts to control the rising costs of healthcare, as well as healthcare reform, has created choice for employees, especially for those whose company was an early adopter of private exchanges.

The changes in the healthcare landscape have forced participants to take more accountability for their medical coverage. Just as we experienced with the move from DB to DC plans, as the responsibility shifts, so the need to provide tools and resources for participants increases.

For example, Xerox’s initiatives with its private exchange have focused on driving more participant engagement at the right time through its partnership with Evive. With Evive’s predictive analytics technology, Xerox will be able to prioritize and deliver personalized messages to RightOpt’s enrollees at a time when it will be relevant to the individual.   

Mercer is also making enhancements to its private exchange, Mercer Marketplace, including building a database to analyze activities, which can then be tied to driving certain outcomes. Other initiatives are around voluntary benefits in both Mercer Marketplace and its traditional H&B administration business, and creating pre-packaged enrollment options for individuals based on questionnaires and algorithms.

For vendors, maintaining compliance is a fundamental requirement, and here many vendors are trying to leverage robotics were possible, e.g. communications within Xerox’s ACA compliance offering, HealthAct, have been automated to drive improvement. 

As for the future, participants can look forward to the integration of health and wealth, with vendors including Aon Hewitt and Xerox exploring how these two areas will come together. And for companies, global benefits will take on a more prominent position.

NelsonHall’s Targeting Benefits Administration Services market analysis report, which will be published later this month, finds that the top driver for organizations outsourcing benefits administration is to improve the participant experience. Accordingly, both retirement and health & welfare (H&W) services vendors have been investing heavily in their respective areas to enhance the employee experience. Here I take a brief look at recent initiatives in the retirement space.

DC administration vendors began to provide education, resources, and mobile access to participants a few years ago to assist in retirement preparedness. In many cases, however, the information and tools provided were often generalized by various life stages, and usually required initiation by the participant.

To address the problem, many companies have incorporated automatic enrollment and automatic escalation features into plan designs to help employees that do not have the time or aptitude to plan for their retirement. And for participants that have become more proactive about their retirement income, they can take advantage of a wide variety of enhancements that DC administration vendors have implemented.

Some of the simplest improvements include:

• Expanding enrollment capabilities into 401(k) plans through mobile devices, e.g. John Hancock RPS’ MyLifeNow app
• Revamping participant portals to facilitate improved participant interactions, tailored education, and additional tools to assist in informed decision-making. For example, T. Rowe Price’s Workplace Retirement portal includes an enhanced retirement income experience that allows participants to create their own personalized confidence numbers as well as the ability to aggregate and view balances, including outside assets.

It’s also important to note that these changes are not just happening in the U.S. For example, Mercer relaunched its superannuation offering in Australia to increase member engagement by focusing on digital transformation, customer management, marketing automation, and workforce management.

Moving along the continuum, enhancements have expanded beyond a focus on retirement to address other financial issues, such as budgeting and debt management. Examples include:

• Fidelity’s Plan for Life Financial Wellness offering
• Empower Retirement’s partnership with DoubleNet Pay for its new service that helps participants pay bills, pay down debt, and save for emergencies. 

Some of the most advanced changes within DC administration include personalized information. An example is Aon Hewitt’s financial wellness initiative, which uses information from an individual’s self-assessment to push messaging and tools that align with the participant’s situation and goals.

In part 3 of this series on recent developments in the benefits administration outsourcing market, I will focus on how H&W services vendors have been enhancing the participant experience, and what can be expected in the future.

In this, the first of three blogs on the current benefits administration outsourcing market, I take a brief look at what’s been happening in H1 2016.

Benefits administration accounted for ~40% of HRO contract activity in the first half of 2016, with a heavy emphasis on renewals and contract extensions. Approximately 90% of contracts were from private sector organizations, with a strong showing from the healthcare and manufacturing verticals.

Mid-market activity, which NelsonHall defines as organizations with between 500 and 15k employees, continued to outpace activity from the large market, but was down ~12% compared to H1 2015.

Examples of H1 contracts include:

• Voya’s five-year renewal with the State of Colorado for DC administration, including 401(k), 457(b), and 401(a) plans for ~82k participants
• WageWorks’ contract award by United States Office of Personnel Management for FSA administration for ~2.3m eligible employees, with ~350k participants
• Aon Hewitt’s contract award by Starbucks for its private health insurance exchange for active employees.

For the last several years, vendors have been busy expanding and strengthening their benefits administration service portfolios through acquisitions. In fact, in each of the last three years there have been at least ten notable acquisitions, which is a stark contrast to the two that have occurred this year, including Aon Hewitt’s acquisition of Univers to strengthen its voluntary benefits offering, and Reed Group’s acquisition of Aon Hewitt’s absence management business.

Despite the slowdown in acquisition activity, providers have been hard at work, some focused on integration activities following large M&As in 2015, such as the Willis and Towers Watson merger, while others have been focused on developing their existing service offerings.

Ensuring that benefits administration service offerings adequately manage new compliance requirements will always be paramount for vendors. Beyond compliance, the underlying theme of vendor priorities has been enhancing the participant experience, which is taking place in both DC administration and Health & Welfare (H&W) services.

In part 2 of this blog series I will explore exactly what vendors have been doing to enhance the participant experience in DC administration.

• Providing global brokerage and consulting services
• Providing a global technology offering with optional local administration services.

The global brokerage and consulting model has been implemented by the likes of Aon Hewitt, Mercer, Willis, Towers Watson, and Allianz.  On the technology side, we’ve seen Thomsons Online Benefits’ Darwin platform, Mercer’s MercerGOLD+ technology, and JLT’s BenPal.

While there has been some crossover between the two approaches, there has been no formal offering that fully marries the two and provides a cohesive approach – until now. Mercer and Thomsons have entered into an alliance to expand their global benefits management offerings to MNCs, effectively combining both approaches for the first time.

Through the agreement, Mercer will provide its global employee benefits brokerage and consulting services, including benefits program coordination, management, monitoring, and reporting, while Thomsons will provide administration, automation, and enhanced communications of benefit plans through its cloud-based Darwin platform.

This alliance allows each company to leverage their core competency at a time when it is becoming increasingly important to have a global benefits strategy in place as organizations continue to expand their talent pools globally and diversify their workforces.

Within the last year, interest in global benefits solutions has increased greatly, with many vendors partnering with Thomsons for the technology component, including:

• ADP: launched ADP Enterprise Benefits, a global benefits management program through Thomsons’ Darwin software that is centralized and locally integrated, combined with ADP’s managed services
• Xerox: launched Xerox Global Benefits Services to provide consistent compliance administration globally, which integrates Thomsons’ Darwin platform and Xerox’s Life@Work portal to provide automated processes, advanced self-service capabilities, and multi-lingual employee inquiry support
• NGA HR: launched NGA Employee Benefits, a global employee benefits solution that leverages Thomsons’ Darwin platform; the offering began in the U.K., expanded to APAC, and is now rolling out to other regions.

Technology is the backbone of a global benefits offering, aggregating all the data on the back-end to provide insight into key trends such as benefits spend, as well as providing a consistent and standard user experience for employees that is designed to increase engagement. And, with this latest development, it seems that Thomsons’ Darwin platform, which is available in 74 countries and 22 languages, has clearly become the preferred and prominent global benefits technology.

In partnership with Thomsons Online Benefits, ADP is now offering global benefits management via the cloud, with Darwin software used to provide global employee benefits administration. ADP Enterprise Benefits is a centralized, yet locally integrated, platform supported by ADP’s managed services. It is country and benefit agnostic, and does not need to be hard-coded to a specific country. Benefits can be configured at local level, which includes setting up employee data from a client local system of record or, if they are an ADP GlobalView client, from the GlobalView platform.  Currently 75 countries and 26 languages can be supported, with 100 countries contracted to be live by end of 2016.

Client drivers for adopting global benefits management include:

• One system to manage a global and diverse workforce, with increasingly complex legislation in each country
• A standardized user/employee experience in any country in their own language, e.g. enrollment in benefits
• Globally aggregated analytics to obtain actionable workforce data. Examples include understanding who is utilizing which benefits by country with the ability to drill down into demographic data
• Global insight into spend (according to a recent Thomsons Online Benefits survey, 44% of companies do not know what they spent on benefits)
• Ability to provide total rewards statements globally, contributing to increased employee engagement.

In a live demo, several benefits of the global system were apparent, including:

• Ability to toggle to a local country and see a total rewards statement of salary and benefits (plus additional benefits available)
• Depiction of ‘% of salary’ by basic salary, finance and protection (i.e. life insurance, disability), and lifestyle benefits
• Analytics showing a global overview of headcount, spend (including spend per headcount, spend over time), and benefits utilization (including login rate by demographic)
• Map-based analysis of spend by country, along with usage of medical and wellness, etc.

ADP has yet to build its own global client base for this new offering, but examples of Thomson Online Benefits clients include a tech consumer products company in 44 countries and a manufacturer in 19 countries. Clients using the Thomsons global system include Volkswagen, Microsoft, Samsung, Visa, and NCR.

ADP will primarily target existing clients using ADP GlobalView (available in ~110 countries for large MNCs), which currently has ~1,120 clients. The provision of global benefits will be attractive to MNCs, and we would expect a good proportion of ADP’s clients to adopt the new offering. Deployment times vary depending on the number of countries involved (a 52-country deployment took 18 months, ~3 countries per month). 

More generally, ADP will continue to focus on product and service innovation (a key theme of the MOTM conference) by working with clients via its 55 product advisory councils and the ADP Innovation Labs. 

Fidelity Health Marketplace is a one-stop shop that assists companies with less than 2k employees with many services that Fidelity has honed over the years, including decision support tools, self-service, and reporting tools for employers.

The exchange uses hCentive’s WebInsure Benefits private exchange technology platform, and includes a network of national and regional benefits including:

• Health insurance: medical, dental, and vision
• Life and AD&D insurance
• Long and short term disability insurance
• Flexible savings accounts: health, commuter, and dependent care
• Tax-advantaged accounts: HSAs and HRAs
• Wellness tools: telemedicine, mindfulness, and cost transparency tools.

Fidelity’s exchange model includes full service support beginning with assisting clients in determining the right plans to offer their employees (i.e. multi-carrier for employers, single carrier to employees), with Fidelity assuming the role of insurance broker.

In addition, organizations have the opportunity to leverage other benefits administration services from Fidelity, such as DC administration and HSAs. Employee helpdesk services are also included.

A key differentiator for Fidelity is that the exchange integrates with Fidelity’s NetBenefits platform, providing organizations using multiple Fidelity services with a seamless experience. In terms of market share, Fidelity dominates the DC administration market, and their small and mid-market DC business in particular has experienced strong growth since 2010. By adding a private health exchange offering, Fidelity is providing a holistic benefits experience for small and mid-market organizations.

This is a significant development for Fidelity, whose DC administration business is so strong it appears to overshadow its H&W administration offering, which is targeted on large market organizations and is often part of a TBO deal. However, the opportunity for Fidelity with this exchange offering is great because Fidelity has a large amount of small and mid-sized DC admin clients to cross-sell into, which keeps exhibiting solid continual growth. For example, in the first half of 2015 alone, DC sales for the small and mid-market were ~$8bn, compared to $9.5bn in the whole of 2014.

Historically, SMEs haven’t been a key target market for many of the top vendors providing H&W administration services, but with ACA’s employer shared responsibility provisions, companies within this segment need outside help. In addition, small and mid-sized organizations are the fastest growing segment adopting exchanges, which gives Fidelity an edge, as they already have established relationships with this market through their DC business.

Overall, HRO contract activity is up ~11% y/y in 2015.  Renewals and contract extensions account for 25% of that activity, vendor changes ~20%, and new deals 55%. Regional and global multi-country contracts continued to grow in most HRO towers, especially payroll, which is also a strong driver for multi-country MPHRO contracts. 

Although trending down slightly in the last three years, mid-market activity remains high globally. Contracts included:

• Xerox awarded a Total Retirement Outsourcing (TRO) services contract for 1.2k employees by Tennants Consolidated in the U.K.
• Zalaris awarded a MPHRO contract for 1k employees by Borregaard in Norway, including HR admin, payroll, travel expense, time and attendance, and personnel document archiving solution
• Raet awarded a payroll contract for 6.7k employees by Philadelphia Zorg in the Netherlands.

Public sector activity is up nearly 5% y/y and accounts for ~20% of contracts, including:

• Voya Financial and City and County of Honolulu: DC administration
• Equiniti and Her Majesty’s Passport Office: payroll and time and attendance
• TIAA-CREF and Lane County, Oregon: DC administration.

M&A activity continues to increase y/y with ~27 deals to date, up from 25 acquisitions in 2014. By service line, M&A activity within benefits administration remained high, while acquisitions within RPO have become increasingly aggressive y/y. The majority of the RPO M&As have been focused on expanding or strengthening existing RPO services, especially to add recruitment consulting capabilities such as Capita acquiring ThirtyThree, WilsonHCG acquiring Sumner Grace, and ReThink Group acquiring Consort Group. To a lesser degree, RPO vendors are also keen to expand their geographic footprint, with the emphasis on the U.S., U.K., and Canada.

New offerings launched recently that will gain momentum in 2016 include cloud-based HR services, including HR technology consulting/strategy, HR SaaS implementation services, and post-deployment support, which may or may not include HR BPO services. The biggest focus for most organizations has been on developing a cloud-based HR technology strategy, though some vendors such as Aon Hewitt who launched its offering about two years ago are further along the continuum, providing post-deployment application management support on Workday exclusively to many clients.

Much of this HRO activity from 2015 will shape the deals and future direction vendors will pursue in 2016. Other 2015 developments that will continue to evolve in 2016 include private health insurance exchanges and the use of robotics process automation within HR.

Capita states it believes the acquisition would:

• Position Capita as a leading provider of technology-enabled BPS
• Provide a stronger platform for Xchanging to accelerate sales growth and to develop its offerings
• Enable Capita to secure £35m+ in cost synergy benefits
• Be immediately earnings accretive.

Capita has been in discussions with Xchanging since early August regarding a possible offer, upping its initial 140p offer to its final 160p proposal on September 24 - which Xchanging’s board confirmed it would be willing to recommend on September 29 should Capita make a firm offer. Capita was granted due diligence access and had until 5pm on November 2 to make an announcenent.

There is another suitor, Apollo, with whom Xchanging has been having discussions about a potential 170p offer. Will this announcement push Apollo into making a counter offer? Xchanging's share price has surged since the news of the potential talks (over 165p at the time of writing, though still below its one-year peak).

Xchanging has been contending with a range of issues, and its global portfolio lacks coherence, partly a reflection of its heritage in a few large and diverse “Enterprise partnerships”. Xchanging is currently between CEOs, Ken Lever having announced his intention in July to step down at the end of the year, and new CEO Craig Wilson not yet started.

If Capita were to complete, this would be its largest ever acquisition, dwarfing its second largest, the £157m acquisition of avocis this February (though there have been a number of £50m+ acquisitions since 2011, helping Capita expand into new markets or extend its IT capabilities).  So why is Capita so interested?  

In recent years, Xchanging has repositioned and invested to emphasize its capabilities in “technology-enabled BPS”- exactly what Capita is emphasizing with its own various BPO offerings.  Also, the private sector is increasingly important to Capita (over 60% of its current pipeline is in commercial sectors) and Xchanging would increase its presence in the Lloyds market, where Capita already has a presence for specialist services.

Looking in more detail at Xchanging assets that would be attractive – or at least very relevant - to Capita:

1. Xuber software suite for the non-life commercial market: the biggest investment to date (a whopping $200m+ in total investments since 2011), both in platform development and in acquisitions: in 2014, Xchanging invested £75.6m in acquiring Total Objects, whose binder software is now integrated into the Xuber suite, and Agencyport Europe,extending its software into the health insurance sector, with software for international private medical insurance and exposure modeling (acquisition was delayed), plus a further £11.7m on development of Xuber. Xchanging has found converting interest in Xuber to sales more challenging than anticipated, particularly in the U.S. Will Capita’s greater commercial clout help? It would inherit sales teams from Xuber, Total Objects and Agencyport Europe that need integrating into a single unit to cross-sell, where relevant, the portfolio. Would Capita place the Xuber business in its newest operating division “Capita Digital and Software Solutions”, or would it place it in an insurance sector division?
2. The Xchanging Claims Services BPS unit : Capita is already active with a range of specialist services in the London insurance market: this capability would neatly expand its portfolio
3. Xchanging’s business in Germany, where it provides investment account administration BPS for Fondespot Bank, will also be of interest to Capita, who is building a presence in the DACH region, via an acquisition spree in the CMS BPS market, also via an insurance BPS contract with Zurich. The complex administration services in Germany that Xchanging would bring in to Capita would fit well in its Asset Services division
4. Procurement: Xchanging has been through a significant change of direction with its procurement services in recent years, to technology-led offerings, boosted by the acquisitions of MM4 (which was U.S centric) and Spikes Cavell Analytics Ltd (SCAL, which was U.K public sector centric). These offerings may find traction in the Capita client base
5. Expanded offshore IT services capabilities: in India, Xchanging has centers in Chennai and Pune, Bangalore, and tier 3 cities such as Shimoga (Karnataka).  It also has a center in Kuala Lumpur, Malaysia, most providing IT infrastructure services to YTL Communications, and a smaller ADM unit in Singapore (where Capita also has a small presence, targeting the reinsurance sector). There is also some offshore BPO activity in India and Malaysia. Capita may rationalize some of these sites, but would certainly be interested in the expanded offshore application services and BPO delivery capabilities
6. IT services: Xchanging has some networking capabilities, with a client base in the education and health sectors, as well as Lloyds – this would fit well into the Capita IT Enterprise Services division, which has grown through a series of acquisitions in recent years

And less attractive to Capita?

• The Australian operations, where Xchanging’s New South Wales Workers’ Compensation contract was not renewed, and where its procurement business has not really gained traction.
• The U.S. business: Capita’s international efforts are currently focused on Northern Europe. It would be a major change of strategy for Capita to start targeting the U.S., and its management will be highly aware of other service providers who have tried and failed to penetrate the U.S.

But overall, Xchanging’s portfolio is particularly well suited to Capita's business and where it is looking to develop over the next few years. And the cost synergies from the head office rationalization are also a particularly good match.  

We thus believe is highly unlikely that, even if there is a higher counter offer from Apollo, the Xchanging board will change it recommendation to shareholders: Capita presents a better option longer term. Howver, a counter offer from another IT services vendor might be more attractive.

NelsonHall has just published a comprehensive Key Vendor Assessment on Capita. We have also historically included Xchanging in the KVA program.

Overall, there has been growth across ADP’s cloud-based platforms, including RUN, Workforce Now, Vantage HCM, and GlobalView HCM, with the total number of clients reaching ~501k, up 16% from ~431k last year. These platforms make up the foundation of ADP’s HCM business, so further developments and enhancements to its technology are paramount to its continued success.

For the last year, the focus has been on enhancing the user experience across most of these platforms. For example, the benefits module of Vantage HCM includes a comparison shopping experience, and a new onboarding tool will be released in the next few weeks. Another significant enhancement included the launch of ADP Marketplace in late 2014, which integrates third-party applications with ADP’s technology. To date there are ~60 apps in the ecosystem, including RightFit’s RightView, which was added last week.

In the U.S., ADP has focused on the synergy between payroll, HR, and benefits, which is now expanding globally through a partnership with Thomsons Online Benefits. Global/multi-country benefits offerings essentially take one of two forms:

• Multi-country benefits brokerage and consulting services
• Multi-country technology platform with optional local administration.

Thomsons’ Darwin platform will be integrated with ADP’s GlobalView HCM platform, which is geared towards MNCs. Other examples of multi-country technology platforms include Mercer’s MercerGold and JLT’s BenPal.

In terms of its future direction, ADP’s new big data platform, DataCloud, will be a significant focal point, which goes beyond providing analytics and reporting to include benchmarks beyond pay. Other future developments of DataCloud include predictive analytics and data exchange, which will show how workforce metrics impact business outcomes.

The largest opportunity for ADP is leveraging its HR BPO services, and ADP appears to be on the path to capitalize on this as it focuses on connecting its technology with expertise to transform HCM. This, however, will not happen overnight and while ADP’s Strategic Advisory Services can facilitate the connection to its HR BPO services, the bandwidth of Strategic Advisory Services to support such a venture will take time to develop, especially when compared to other HR BPO providers such as Aon Hewitt, Accenture, and Xerox that have separate consulting arms.

However, the ingredients for success are all present, so it’s just a matter of assembling them – though the outcome will be different for each client depending on their outsourcing mix. For example, for Sodexo, ADP provides end-to-end HR BPO services, while Kimball International has outsourced employment verifications and COBRA administration to ADP while retaining other services in-house using the Vantage HCM platform. 

In any event, ADP is continuing on a path that is focused on client-centric innovation coupled with services.

In the U.S., the emphasis will continue around Health & Welfare (H&W) services, stemming from the Affordable Care Act (ACA). In 2015, tier two H&W specialists such as Businessolver and TASC launched ACA reporting offerings, with many PEOs expected to follow suit in the near future.

As the entire benefits landscape shifts in the U.S., service providers have ramped up capabilities around key service lines such as private exchanges and spending account administration. For example, ADP launched its private exchange offering, which is focused on integrating with its other HCM offerings including payroll, HR, spending accounts, and its ACA offering Health Compliance.   Blue Cross Blue Shield has also partnered with Connecture to launch its BCBS Marketplace for retirees in 45 states. In addition to adding private exchange clients, most vendors will be focused on expanding and enhancing private exchanges for active employees and retirees in 2016.

In terms of spending account administration, the objective for tier one specialists will be to acquire tier two vendors to expand their client bases, which has already started to happen with, for example, TASC acquiring BMO Benefits Services.

In the U.K., the new pension rules providing more freedom and flexibility will lead to new offerings that include calculators and modeling tools to provide individuals with information and assistance.  To date, Equiniti has launched its RetireMe app and Aon Hewitt launched an online retirement offering, Bigblue Touch 4life, that includes the following:

• Access to an annuity broking service to compare prices and select the provider and annuity that matches employee needs
• Flexible drawdown
• Access to cash and a range of investment funds and strategies
• Access to advice.

Also in the U.K., attention in 2016 will focus on employee engagement and education around retirement planning.

Globally, initiatives around employee wellness will be on the rise next year. Newer offerings in the market include Mercer’s Health Pathfinder platform, which enables employers to leverage the latest health management solutions to reduce healthcare costs and cultivate healthier and more engaged employees, and Towers Watson’s web-based health management offering, HealthVantage. In addition, EAP providers (such as Ceridian who divested its H&W business to focus exclusively on LifeWorks), will be improving available services for employees while being more proactive about engaging employees.

Over the last few years, traction on the multi-country benefits front has been slow and steady, and this will continue at the same pace. Towers Watson, however, has aggressively expanded its capabilities in this space. Its biggest news is the merger with Willis, although prior to the merger both companies were strengthening their respective businesses as follows:

• Towers Watson acquired Metis Insurance to launch a benefits brokerage business in India, as well as launching a benefits brokerage business in Japan and South Korea
• Willis acquired PMI Health Group to expand its presence and product offering in the U.K., and partnered with Benefex for benefits admin technology and communications in the U.K.

Trends from 2015 plus future initiatives will be highlighted in NelsonHall’s next Targeting Benefits Administration market analysis project, which will start in December.

With respect to its benefits administration business, ADP has carefully and deliberately built out a comprehensive offering, which now includes a private exchange. Within the broader picture, ADP’s private exchange integrates with its other HCM offerings, including payroll, HR, and benefits.

ADP’s private exchange offering, targeted at employers with a workforce of 1k-15k, provides an end-to-end experience for eligible and non-eligible employees including:

• Defined contribution
• Public exchange enrollment
• ACA compliance via ADP’s Health Compliance offering, which includes eligibility, affordability, and regulatory management around ACA
• Spending accounts, which will assist employees in saving for their health needs.

Underpinning ADP’s private exchange approach are the following two key partnerships, which essentially provide coverage for an organization’s entire workforce:

• USI Insurance Services: for eligible employees (although clients can continue working with their current broker)
• GoHealth: for non-eligible employees.

USI, an insurance broker and consultant with ~50% of its business focused on employee benefits, will use its ONE Advantage approach for ADP’s clients, which includes:

• Omni: its proprietary knowledge platform
• Network: ~1.5k employee-benefits employees across the U.S. in local markets
• Enterprise planning: regular client engagements focused on broader strategy objectives.

USI will provide eligible employees of ADP’s clients the ability to choose benefits that best suit their individual needs via a broad selection of plan options, which is integrated into ADP’s technology, including Vantage HCM. ADP’s emphasis on innovation, particularly in developing and enhancing the end-user experience, will bolster the solution with appropriate decision support tools in place and will mirror a retail-oriented shopping experience.

ADP’s partnership with GoHealth, on the other hand, will provide support for employees that are not eligible for employer-sponsored health insurance, namely part-time, temporary, and contract workers who need to enroll in a public exchange. Through GoHealth, non-eligible employees will be able to:

• Compare plans and prices offered on the public exchange
• Apply for subsidies
• Receive support from licensed advisors.

ADP’s partnership with GoHealth bridges the gap for non-eligible employees, who are often left on their own to navigate public exchanges, and provides employers with information on how these employees are obtaining health benefits. Like USI, GoHealth is integrated with ADP’s platforms. 

The end result is an integrated private exchange offering within a holistic HCM solution that incorporates payroll, HR, and benefits.

But what does the merger mean for underlying business in the area of global benefits and benefits administration?

Towers Watson brings to the table advisory services in benefits, HR, risk, and financial services, plus benefits administration services, including a private exchange, OneExchange. Willis brings its reinsurance and property/casualty insurance broker business, global underwriting, HR, and benefits services, and the Willis Advantage private exchange under a white label agreement with Towers Watson.

Global/Multi-Country Benefits

In early 2014, Willis launched a global human capital and benefits business, which combined its existing employee benefits and related consulting services, with services including:

• Pensions and retirement planning
• Healthcare
• Group risk and life cover
• Compliance consulting
• Data analytics consulting
• Communications consulting
• Wellness consulting
• HR consulting.

In early 2015, Towers Watson began to expand in India and South Korea as part of a larger initiative to provide a global benefits offering for MNCs. This expansion included the acquisition of Metis Insurance, which added benefits brokerage capabilities in India. 

The Willis and Towers Watson merger will now blend these separate capabilities and provide the new entity with a combined global benefits offering that will be comparable to what Mercer and Aon Hewitt have been offering in this space for the last few years.

The merger also equips Willis Towers Watson with additional resources that provide it with the scale to more effectively compete with Mercer and Aon Hewitt in general. For example, Willis Towers Watson will have ~39k employees in ~120 countries, compared to Mercer’s ~57k in ~135 countries and Aon’s ~69k employees in ~120 countries; and combined revenues for Willis Towers Watson are estimated at ~$8.2bn, compared to Mercer’s ~$12.9bn and Aon’s ~$12bn in 2014.

Benefits Administration & Private Exchanges

In the five years since the merger of Towers Perrin and Watson Wyatt to create Towers Watson, the company has made a handful of acquisitions that have strengthened its benefits administration business, specifically Health & Welfare (H&W) services.

The first acquisition was Aliquant in January 2011, which strengthened its H&W administration capabilities. A year and a half later, Extend Health was acquired for $435m to add a retiree exchange, followed by Liazon Corporation for $215m to enhance its exchange offerings. Most recently, Towers Watson acquired Acclaris for $140m to add in-house reimbursement account administration services.

The Extend Health acquisition was the initial stepping stone for Towers Watson to enter the exchange business, and following this Towers Watson launched OneExchange, a single exchange platform for pre‐ and post‐65 retirees and active employees. The Liazon exchange for active employees exists next to the OneExchange offering, which is focused on larger employers.

In mid-2013, Willis North America launched a private exchange, The Willis Advantage, under a white label agreement with Towers Watson using the Liazon technology. The Willis Advantage targets mid-sized clients.

The merger of Willis and Towers Watson will bring together both of these private exchange businesses, creating a greater presence targeting both mid-sized and large organizations. 

With employees keenly aware of the annual rise in their out-of-pocket health insurance premiums, this provides a great incentive for employees to participate in their employer offerings. Examples where this may be utilized include:

• Education
• Clinical services including prevention services
• Programs and health initiatives, e.g. fitness centers, weight loss, including rewards for achievement of objectives.

In addition, new developments since my last wellness blog include:

• Morneau Shepell enhanced its MY EAP app to include a Financial Wellness Score assessment that helps users gauge their financial health and complements other tools that measure stress levels and relationship quality
• Xerox launched an incentive-based financial wellness program, SavIncent, to improve employees’ financial health and retirement readiness. SavIncent is linked to the company’s retirement savings plan and uses monetary incentives to reward employees for participating in wellness activities
• IBM developed a Watson-based mobile app, Pathway Panorama, to analyze information about an individual’s lifestyle and wellness-related biomarker data to provide personalized options to help the user and their physician make informed decisions about living a healthier life. Panorama will also monitor a user’s health and wellness information, and ping the user with any new relevant recommendations
• Ceridian expanded its LifeWorks wellness offering, launching a sleep coaching program which includes research-based information and support on healthy sleep practices
• Benefitfocus launched a new benefits software offering for consumers, employers, insurance carriers, and brokers that includes a wellness ecosystem including health assessments and rewards programs via RedBrick Health
• Businessolver launched a wellness administration technology offering, HealthTracker, to connect wellness and insurance-based incentives
• Towers Watson partnered with U.K.-based Fitbug and Australia-based HealthLogix to launch a web-based health management offering, HealthVantage. It incorporates new technology such as wearable devices and online applications for smart devices, and features for employees including a wellness assessment. Features for employers include a corporate dashboard to show overall workforce health.

According to ManpowerGroup's annual Talent Shortage Survey released May 18, 2015, 32% of U.S. employers report difficulties filling job vacancies due to talent shortages, which is down from 40% in 2014. And, while there are many factors contributing to talent retention, I believe increased focus on employee wellness, leading to increased employee engagement and satisfaction, is an important contributing factor.

Benefits providers are making smart choices in continuing to develop their wellness offerings, and this combined with the new EEOC guidance has given employee wellness programs a welcome shot in the arm. 

Here’s a quick update and review of how the private exchange landscape has changed in this short time.

Active exchanges are much younger than retiree exchanges, and have taken the limelight.  Even in this short period of time, there have been consolidations among suppliers, including Towers Watson acquiring Liazon and Aetna acquiring Bswift. Future acquisitions will likely be by insurance companies or benefits brokers/consultants with the targets being pureplay exchange providers or vendors providing exchange technology.

Recent results and surveys from Aon Hewitt and Mercer suggest the staying power behind active exchanges:

• Aon Hewitt was the first to market its fully-insured active exchange for large companies, Aon Active Health Exchange, and secured Darden Restaurants and Sears Holdings in its freshman year. By its sophomore year, Aon Hewitt was supporting 18 active exchange clients and ~350k participants, including its initial two external clients. Year three included a 100% renewal rate among employers as well as insurance companies, with another ~12 new clients added.  Since its inception, Aon Hewitt’s active exchange model has also expanded its coverage options to include 10 voluntary benefits
• Mercer launched its private exchange, Mercer Marketplace, for 2014 enrollment, and in that one year, enrollment increased fivefold. Further, ~60% of employees on Mercer Marketplace selected a high-deductible health plan, which indicates that many employees are over-insured.  Importantly, the number of large employers likely to terminate their plans within five years and send employees to a public exchange is down from 6% to 4%.

Behind these results is the value proposition of private exchanges, with the most important revolving around choice, which is at the core of consumerism.  In addition, active exchanges help organizations control costs.

To date, according to Mercer’s National Survey of Employer-Sponsored Health Plans, around 3% of large market organizations have adopted active exchanges and another 28% or so are considering it.  Examples of recent active exchange contracts include:

• Aon Hewitt and Hilton Worldwide, covering 70k employees in 44 states
• Towers Watson and Starwood Hotels & Resorts Worldwide, covering 26.5k active employees and their families as of April 1, 2015
• Xerox and Church & Dwight, covering 4k employees
• Towers Watson and Time, covering full-time active employees and dependents.

On the retiree front, recent developments include Blue Cross Blue Shield (BCBS) as a new entrant.  BCBS will partner with Connecture to launch BCBS Marketplace, which will offer the following in 45 states and Washington D.C.:

• BCBS Medicare Supplement Insurance (Medigap)
• Medicare Advantage Plans
• Medicare Part D prescription drug coverage
• Supplemental products, including vision, dental, life insurance, etc.

Although still in its infancy, private exchanges will ultimately transform the entire benefits landscape by the end of the decade.

For years, organizations and DC administration providers have been honing different approaches to address this. One of the biggest challenges in establishing a model that works stems from diversity within the workforce. Earlier approaches attempted to resolve this by formulating guidance around different life stages, which was a good start.

Along the way several tools such as peer comparisons have been added, and automatic enrollment and escalation features have definitely helped grow 401(k) accounts in the right direction. But these steps alone will not guarantee success, especially if employees take out a 401(k) loan, which impedes its growth and subjects the individual to potential fees and penalties. 

The majority of large market employers in the U.S. have already outsourced their DC plans. Therefore, most contract activity in this area consists of either a renewal with the existing service vendor or a change to a new vendor. In 2013, these contracts accounted for ~80% of DC activity, and in 2014, renewals and vendor changes within the large market accounted for 90% of the activity.

During both years vendor changes alone accounted for ~45% of activity, and the indications are that plan sponsors are looking to their new vendor to deliver more innovative and sophisticated DC approaches that will yield better DC metrics. So, what do these new approaches look like? Xerox’s SavIncent offering is a good example. 

SavIncent is an incentive-based financial wellness program that is linked to the company’s retirement savings plan. It uses monetary incentives to reward employees for participating in wellness activities including:

• Completing a financial health or risk profile
• Enrolling in a 401(k) plan or signing up for auto escalation
• Meeting with a financial advisor
• Establishing a will
• Taking financial training seminars
• Monitoring their credit score.

These activities are tracked through an online participant and administration system, which also calculates the incentives so that employer contributions can be reported to the record-keeper, and so that a direct deposit can be made into the employees’ 401(k) account.

Financial savviness is hardly everyone’s forte, and education and guidance alone are not necessarily enough to motivate plan participants in the right direction. Financial incentives are powerful, and can be the new key ingredient to improving retirement readiness.

The Congressional Budget Office estimates that employer-shared ACA responsibility penalties will produce revenue of $8bn in 2016 (from 2015 penalties). This may sound surprising because ACA was signed into law in March 2010 with a clear employer mandate: companies with 50 or more FTEs are expected to offer healthcare benefits to at least 95% of their FTEs or pay a penalty.

To be ready, companies have been scrambling to determine if they are required to conform, who is eligible, and if they will indeed offer benefits to all those who are eligible. Perhaps unsurprisingly, with the law running to ~2,400 pages, this process is far from straightforward. Here are a few key determinants (without all the details) of which businesses should provide coverage for their employees:

• For businesses with less than 50 full-time equivalent employees (FTEs), offering health insurance to employees is optional – there are no penalties
• Companies with 50 or more FTEs may be penalized if they do not offer coverage to at least 95% of its FTEs or if they offer coverage that doesn’t meet the ACA’s requirements. The penalty, or Employer Shared Responsibility (ESR) payment, is $2,000 per employee
• The law requires businesses to offer coverage only to those employees who work 30 hours per week or more (as defined by statute, a full-time employee is an individual employed on average at least 30 hours of service per week). An employer that meets the 50 FTE threshold is referred to as an applicable large employer (ALE)
• To be subject to the ESR provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that totals at least 50. Seasonal workers are also taken into account in determining the number of full-time employees 
• The individual mandate under ACA went into effect January 2014 with a penalty of $95 or 1% of income, whichever is greater, for an individual who chooses not to elect coverage. In 2015 the penalty becomes the greater of either 2% of earnings or $325 for an individual ($162.50 for children under 18) and up to $975 per family. It will be included in the individual/family tax filing; penalties will continue to increase over the coming years.

Clearly, employers face significant challenges and have many decisions to make regarding ACA. Some have tried to avoid the ACA mandate by reducing employee hours below an average of 30 hours per week to avoid offering healthcare. However, this is likely to be detrimental in terms of lower employee morale and loss of talent. And, further adding to the complexity, there will be instances where it is cheaper for employees to purchase healthcare through an exchange with subsidies than to take healthcare insurance offered by their employer (currently there are ~12m employees in exchanges and ~8m have qualified for subsidies).

Given the complexity of ACA, we can expect to see an increase in employers seeking help from third party providers such as Equifax Workforce Solutions, who can assist with the entire ACA process, including understanding the regulations, determining eligibility, and ACA IRS reporting.

Equifax’s ACA platform provides employers with capabilities including:

• Measuring and tracking ACA eligibility
• Deciding to "pay or play"
• Communicating eligibility status with automated reports and notifying stakeholders of potential changes in eligibility status
• Reporting to the IRS
• Updating of calculations, models, and reports as new provisions are rolled out.

Equifax’s ACA platform covers ~8.3m employees. Client size ranges from 700 employees to 300,000; Equifax’s sweet spot is companies with 7,500 – 40,000 employees, though it has ~20 clients with <2,500 employees.  

Other vendors helping employers include:

• ADP, who in 2013 launched a healthcare reform website to inform employers about the ACA, including an interactive ACA compliance timeline (to track guidance, deadlines, changes and updates) and downloadable materials (infographics, webinars, and white papers). Also in 2013, ADP enhanced its PEO offering, TotalSource, to help small and midsized businesses manage compliance and avoid penalties with the ACA. In 2014 ADP launched a Health Compliance offering to help employers comply with ACA and avoid financial penalties
• In 2013, Ceridian enhanced its Dayforce HCM platform for ACA compliance, specifically the Employer Shared Responsibility provision. In 2014 Ceridian added capabilities to ensure compliance with ACA including a single real-time system for ACA variable hour employee benefits eligibility calculations & enrollments.

To date, ~16m Americans have gained health coverage under ACA. But it is clear that many employers are still struggling to get to grips with their ACA responsibilities and processes, and to ensure that employee communications on the subject are clear and constructive throughout. Hence, third party providers can expect to have a significant role to play.

In a subsequent blog I will look at the state and federal exchanges that will make subsidies available to employees who apply and qualify. 

Contracts have come out of the U.S. and Europe, including the U.K. and the Netherlands. U.S. activity has come from both the private and public sectors, with deals ranging from as few as 800 employees to more than 100k. Significant deals include Towers Watson’s private health insurance exchange contract with Time Inc. Back in 2013, Time transitioned its U.S.-based retirees to an exchange and is now following this up by moving its active employees to a private exchange. The private exchange market is the fastest growing H&W service line through 2018, with benefits extending to both employers and employees.

An upside surprise this year is the emergence of Total Retirement Outsourcing (TRO) activity in both the U.S. and U.K., given that, for the last few years, overall TRO activity has been quite low. The shape of TRO deals has also changed and now tends to present as contract expansions including other pensions / retirement administration services. 

Perhaps the most interesting trend to date is the expansion into other country markets. The majority of benefits administration service providers are focused on a single market, but there are quite a few who have established themselves in several countries. For the last few years, expanding into other countries has been a low or non-existent priority for most vendors, but a few did establish multi-country benefits offerings, taking one of the two forms:

• Multi-country benefits brokerage and consulting services
• Multi-country technology platform with optional local administration.

In H2 2014, Towers Watson joined the list of vendors with a multi-country offering, and launched a global benefits brokerage offering similar to those of vendors such as Aon Hewitt and Mercer. And Towers Watson has wasted no time in expanding its offering to new countries in January 2015, including launching an offering in South Korea, and acquiring Metis Insurance in India. Both of these countries further expand Towers Watson’s capabilities in Asia Pacific. Up to now in these global brokerage and consulting deals, benefits administration services have rarely been added.

Another early 2015 market expansion has seen U.K.-based JLT acquire Liberty Asset Management to expand its employee benefits business in Ireland.

With the first two months of 2015 looking this good, the signs are that the remaining 10 months will yield substantial contract volumes and enhanced and expanded benefits administration offerings.

2014 was a busy year for HRO with ~60 partnerships, mergers and acquisitions combined. We now take a look at what to expect in 2015 and beyond for each HRO service line, including service offerings, market developments, and growth.

MPHRO driven by continued shift to cloud-based platforms

• The Multi-Process HRO (MPHRO) market will grow with a mid-single digit CAAGR through 2018
• In terms of revenue, North America will be the largest region, and LATAM will grow the fastest
• Offerings will continue to be structured around a core model, including payroll and HR administration; benefits and recruitment services will continue to be the most popular add-ons
• Workday use will increase in MPHRO contracts; other cloud-based platforms such as Employee Central will penetrate as well. Momentum among existing MPRHO clients for cloud-based platforms will pick-up significantly by 2017
• Partnership activity will far exceed acquisitions, with partnerships primarily focused on cloud-based platforms and analytics (in 2014 ~3/4 of all HRO contracts were platform-based, of which the majority were cloud-based)
• The proportion of mid-market clients will outnumber large market activity by 2016 (in 2014 the mid-market represented 45% of the market, up from 35% in 2012)
• Demand for end-to-end MPHRO deals will be almost non-existent, as buyers continue to seek specialists for some of their services (e.g. learning) and reduce risk by not having one vendor provide all HRO services.

Benefits Administration exchange offerings will be key

• The benefits administration market will grow at an upper single digit CAAGR through 2018, with the majority of activity coming from the private sector
• The U.S. market will be driven by a need to control costs and be compliant with legislation; the U.K. market will be driven by auto-enrolment legislation
• Within Health & Welfare (H&W) services, private health insurance exchanges, reimbursement account admin, and leave of absence offerings will grow the fastest through 2018
• The main emphasis for vendors will be to develop or enhance exchange offerings (e.g. launching an exchange geared towards the mid-market, adding extended lines of coverage); other efforts will focus on enhancing existing Employer Shared Responsibility offerings
• Technology updates will continue to focus around expanding portals with additional features, and improving the user experience, in an effort to further engage participants
• Multi-country benefits admin activity will take one of two approaches: leveraging existing benefits brokerage and consulting relationships, or focusing exclusively on a technology platform.

Learning key to attraction, development and retention of talent

• The Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2018, with Government being the largest sector with growth led by Healthcare
• Selective LBPO contracts will continue to outpace full LBPO, led by content development, including the conversion of instructor-led training (ILT) to e-learning
• Client learning spend will accelerate for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors will continue to strengthen and integrate their talent management service and technology offerings with learning, both organically and via M&As and partnerships
• Clients will seek the help of LBPO providers to select and implement social learning platforms. Vendors who can help clients monitor and measure their effectiveness will have a competitive advantage
• Vendors will explore adding Corporate Massive Open Online Courses (MOOC) capability as clients seek to further reduce costs and reach a wider net of learners
• E-learning will continue to exceed ILT, though ILT remains important, including for hands-on learning and role-playing, e.g. performance management.

Payroll outsourcing driven by multi-country and platform integration

• The payroll market will show solid mid-single digit global growth. Primary growth is driven by demand for multi-country services and for integrated HCM/payroll cloud integration and/or interfaces
• There will be increasing uptake of employee access to payroll information via mobile, particularly in the U.S. Half of clients globally have self-service, and access pay statements online
• Payroll consolidation will continue to support geographical expansions
• Payroll services will develop by greater focus on technology and automation, including integrating with HR-cloud offerings and using platform-based outsourcing
• Retail, manufacturing, and financial services will continue to be the largest purchasers of payroll services
• Cost and compliance will remain fundamentally important requirements of payroll outsourcing.

RPO and MSP (Contingent Workforce Outsourcing) the fastest growing HRO services

• RPO and MSP are the fastest growing HRO services, expected to continue with mid-teen CAAGR through 2019, in a market driven by increased demand for talent
• Vendor consolidation and partnerships will continue to expand into new geographies to meet demand for global RPO / MSP services
• In the candidate-centric market, services will develop to support greater capability in analytics, improved visibility of labor market supply data, and workforce planning processes to address growing talent shortages. Candidate engagement and a streamlined process will remain a fundamental focus
• Technologies to support mobile marketing and video interviewing will be increasingly popular
• Vendors will continue to invest in onboarding services that go beyond the initial hire to support year 1 retention, and are expected to play a larger role in recommending employee progression and career advice for candidates to support retention
• Contingent workforce management services will grow in Statement of Work (SOW) programs and direct sourcing services to ~28% by 2018
• Requirements for diversity sourcing will be reinvigorated following the new legislation in the U.S. on veteran hiring
• Blended RPO / MSP services will increase in adoption, driven by a focus on developing optimal workforce strategies and bringing greater value to engagements through single governance and reporting and broader analytical insights on the total workforce.

We look forward to an exciting year!

Amy Gurchensky, Liz Rennie, Gary Bragar

Rest assured, while the benefits administration market will undergo some transformation, it will not disappear entirely for the following reasons.

First, there are multiple components that make up benefits administration, including DB administration, DC administration, H&W services, and flexible benefits administration. Health care reform will specifically affect the H&W administration piece. Therefore, the DB, DC, and flex markets will not be affected and will continue to utilize a B2B model.  Also remember that the H&W market is more than just H&W administration.  For example, other H&W services include spending account administration, which often works in conjunction with the exchanges, leave of absence administration, EAP services, etc., which will all continue business as usual. Therefore, there is no need to panic about benefits administration disappearing.

Second, private exchanges can be viewed as an evolution in the H&W space. Private exchanges are not only being established by insurance companies, but also by brokers and consultants, such as Aon Hewitt, Mercer, Towers Watson, and Xerox via Buck Consultants, who all are key benefits administration vendors. Therefore, even as organizations transition away from employer-sponsored health plans to private exchange models, revenues will not be entirely lost if those organizations stay with the same provider.

Third, there will always be some companies that will value the traditional employer-sponsored health plan and will keep it in place as a mechanism to attract and retain top talent. This will be analogous to how organizations in the U.S. have largely transitioned away from DB plans and have implemented DC plans. Employer-sponsored plans will likely remain prominent in certain industries.

Therefore, the larger benefits administration portfolio will remain intact as revenues largely shift from H&W administration to private exchanges over the next several years. The restructuring will resolve the benefits spend issue that organizations have been at odds to control, while ensuring compliance with health care reform. Ultimately, private exchanges will create a financially sustainable environment for organizations in the long-term. 

• Health benefit costs per employee will increase ~3.9% on average in 2015 or ~5.9% if employers make no changes to their health plans for 2015
• Around 32% of employers surveyed will renew their existing plans without making changes
• Around 3% of employers will offer of CDHP within three years.

Healthcare reform is forcing employers to evaluate their benefit plan strategies.  As the shared responsibility provision comes into play, enrollment will increase further and cause employers to spend more if they stick with traditional methods.

To address the rising cost of healthcare while remaining compliant with legislation, employers are implementing alternative methods of providing health insurance to their employees.  One method includes offering high-deductible health plans coupled with a health savings account; the other includes implementing a defined contribution model via private exchanges.

In the last year, private health insurance exchange offerings have gained considerable momentum in the market, and service providers are continuing to develop their offerings. For example:

Mercer is expanding the voluntary benefits available for employees, and can integrate or add a wellness offering among other things. For this year’s annual enrollment

Aon Hewitt is adding the following ten  elective benefits: Critical illness; Accident; Hospital indemnity; Life; Long-term disability; Identify theft; Legal; Home / auto insurance; Pet insurance. In its retiree exchange, Aon Hewitt has partnered with Picwell to add predictive analytics, which will allow advisors to organize and analyze ~900k variables that affect plan selection, including data related to claims, lifestyle, and pricing, and recommend the best plan for a particular individual.

Early adopters of health insurance exchanges come from a variety of industries.  The shared responsibility provision will result in an uptick from certain sectors that naturally have a high volume of variable-hour workers such as retail. But managing benefit costs is a problem experienced by all organizations, so many will find that an exchange is the viable long-term solution.

As the exchange space transitions from early adopters to first movers, service providers will inevitably continue evolving their exchange offerings to address legislation and new market demands, as well as appeal to a broader subset of clients. 

• First, the cost of employees missing work due to sickness, diseases and stress-related illnesses can be significant in terms of healthcare costs and productivity. Per Towers Watson, employer healthcare costs are expected to increase 4.4% on average in 2014.
• Secondly, companies are seeking wellness programs to increase employee engagement, leading to increased productivity, retention and improved quality of work and customer satisfaction.

Wellness programs can take various forms and include:

• Education
• Clinical services including prevention services
• Programs and health initiatives, e.g. fitness centers, weight loss and may also include rewards for achievement of objectives

HRO providers are astute in recognizing this growing interest and have been developing their offerings. NelsonHall finds that ~20% of vendors who provide benefits administration services are either launching or expanding their health and wellness offerings. Some examples include:

• Mercer, in July 2014 launched Mercer Benefits U, a total wellness education campaign for employees whose retirement and health plans it administers
• WageWorks and Summit Health partnered for Wellness, February 2014. Summit Health is a provider of on-site wellness, health screening and immunization programs
• Ceridian, in October 2013 launched an enhanced wellness offering which includes: life health assessment; online workshops; team and individual exercises including exercise, walking and nutrition challenges; incentives, and a knowledgebase health library
• ADP, launched its Vitality Wellness offering in August 2012, and its contract with The Jackson Companies includes a wellness portal, health risk assessments, biometric screenings and personalized wellness plans with  recommended goals and activities.

Mobile apps for wellness are developing and include:

• Ceridian’s mobile companion app, allowing participants to record and track progress toward health goals and its LifeWorks app for EAP, work-life and wellness resources
• Xerox’s Benefit Wallet app, to manage multiple health accounts including HSAs, HRAs. FSAs, HIAs (health/wellness incentive accounts), and other specialized services.

We will see HRO buyers accelerate seeking the help of their benefits providers to develop and administer Wellness programs as organizations place greater emphasis on the development and optimization of their talent. The next step needs to be more companies using analytics to measure the impact of their programs. Per the Hay Group, only 58% of companies with Wellness programs are measuring their performance. Yet another opportunity for HRO providers to help their clients!

While learning M&A activity was high in H1 2013, this year, M&A activity in H1 2014 was strongest in the benefits administration market, and it’s occurring in both the U.S. and U.K. as vendors strengthen their DC contribution capability.  In the U.K., JLT acquired Ensign Pensions Administration for £9.9m and Aon Hewitt acquired Lorica Employee Benefits.  In the U.S., Great-West has been busy merging its DC administration business with Putnam’s following the reorganization by its parent company, and then acquiring JP Morgan RPS business to further expand its DC administration business.  Elsewhere, Mercer enhanced its exchange services through the acquisition of Transition Assist. 

That primary theme of benefits administration M&A activity on DC administration is further evidenced by Vanguard’s announcement that it is exiting the DB administration business to focus its efforts on DC administration.

There has also been a high level of M&A activity in the RPO market this year.  Seaton and WilsonHCG each made an acquisition to expand their geographic footprint, HRX and CPH respectively, while Alexander Mann and TrueBlue each acquired a company to expand or enhance their service capabilities, Talent Collective (for talent acquisition services) and SeatonCorp (to develop RPO and MSP capabilities) respectively.

Finally within payroll, there were two acquisitions.  Historically, payroll acquisitions are rare, but almost always focus on strengthening or adding capabilities in a new country / region.  In H1, TMF acquired Tass Axia to strengthen its payroll presence in Indonesia, and Visma acquired Adga to strengthen its payroll presence in Sweden.

The level of M&A activity in H1 2014 contrasts strongly with that of last year. Acquisition activity for learning services, was the strongest area of activity back in H1 2013 with Xerox and GP Strategies both making two acquisitions: LearnSomething and Formation by Xerox and Prospero and Lorien Engineering Solutions by GP. This year, learning acquisitions have slowed with just one acquisition by GP, Effective-People and Effective Learning Companies, and the objective of this acquisition is to strengthen GP’s HCM technology capability beyond learning to include recruiting, onboarding, compensation, succession planning, and HR analytics. 

EBIT margin was 13.0%, down both sequentially (-7 bps) and y/y (-157 bps). And adjusted operating margin (the metric Genpact prefers to comment on its performance as regards profitability) of 15.6% was also down both sequentially (- 76 bps) and y/y (-108 bps).

In Q2 the number of clients contributing $25m or more increased from 12 to 14, so there is some progress in making more money from its clients but we have yet to see the results from Genpact’s transformational plan announced in February this year (see our blog “Genpact: Slow Progress on Transformation Strategy in 2013 - Unveils Next Phase of Plan: http://research.nelson-hall.com/blog/?avpage-views=blog&type=post&post_id=139#sthash.u2IRYAcO.dpuf). This plan includes expanding/enriching the sales force (the intention is to invest at least 6% of revenues in sales and marketing) and increasing domain expertise with SME hires, and increasing industry specific capabilities through acquisitions.

With 37 new sales hires so far this year, client coverage has increased by 10%. The investment in client facing teams is presumably not just about generating new logos but also to improve the protection of existing business, with F&A BPO in particular being an increasingly competitive market (for example, Genpact recently lost most of the Honeywell renewal to Capgemini).

Expenditure on SG&A, at 25.4%, was at its highest for four years. Taking out S&M costs, G&A spend remains very high at over 19% of revenue – there was no mention of improving efficiency in G&A.

Management highlights three transformational deals this year, one of which an F&A win in the insurance sector. Revenue growth this quarter in the BFSI sectors which are key to Genpact (they account for 41% of total revenues) was the lowest it has been for years, at 3.8% y/y, though generally BFSI has been resilient this quarter. We note that no reason has been given by management for Genpact’s slow growth in BFSI this sector. Looking ahead, CEO N. V. Tyagarajan referred to ongoing discussions about setting up a potential BPO utility in the capital markets sector in H2, presumably through a client acquisition. Elsewhere, Genpact saw the strongest y/y revenue growth in its manufacturing sector business since 2012. at 14.5% y/y.

Genpact remains in the early stages of its transformational journey, with Tyagarajan again referring to 2014 as a "pivotal" year.

We have yet to see the benefits flowing through to the topline of a refreshed and expanded sales force, with early wins tending to be smaller project-based engagements. Management continues to guide on accelerated revenue growth in 2015 with margin improvements lagging slightly, presumably in 2016, once new large deals are past initial ramp-up stages.

So far in 2014 we have seen an IP enhancing acquisition and a vertical focused partnership. Expect to see more niche acquisitions such as Pharmalink, as Genpact continues its shift to promoting industry-specific BPO services with IP application and analytics.

Jessica Soler and Rachael Stormonth

Over the years, I’ve watched Ceridian shift from a mostly services-oriented organization to one that is focused on SaaS.  With benefits administration as one of my key focus areas, I wondered what this change meant for its H&W business, which had a very comprehensive list of offerings and a substantial client base.  There is still some uncertainty about the future of its entire H&W business, but Ceridian’s commitment to providing a H&W offering, branded as LifeWorks, is steadfast.

And the commitment was reinforced as David Ossip led the general session with LifeWorks before discussing progress with Dayforce. 

In the last year, improvements to LifeWorks have included a redesigned portal, mobile access and video counseling. The new portal features a “life changes” section that was designed around driving specific messages when employees need them due to a specific life change rather than broad communications about what services are available that may not even apply to a particular employee. 

Moving forward, Ceridian will take things up a notch and integrate Dayforce with LifeWorks, which will lead to event-triggered messaging for LifeWorks clients, making a compelling case for LifeWorks clients to utilize Dayforce.

Examples of triggering events where targeted messages can be automatically sent include:

• Change in marital status
• Change in dependents
• Change in address
• Returning from leave
• Traumatic event.

Specific messages can even be sent to participants in certain geographies experiencing a traumatic event, such as a wildfire for example.

In the fall, an enhanced mobile version of the LifeWorks app will also be released.

To date, LifeWorks’ footprint is pretty substantial across North America with marquee clients including GSK, Marriott and Sodexo.

Often underestimated, employee assistance programs can have a significant impact on an organization.  In one case study, Ceridian helped its client reduce turnover from 20% to 10% by providing its LifeWorks offering. 

In sum, although Ceridian is focused on SaaS with its Dayforce offering, they are also focused on an organization’s most important asset, its people, with its EAP and wellness programs, which can have a significant impact on a company’s bottom line.

Benefits Administration:

Benefits administration was a hotbed of activity in H1!  Contracts were awarded across various service lines in the U.S. as well as in the U.K. There was a solid stream of pensions and retirement administration contracts including TRO activity.  In addition, demand for benefits administration SaaS was quite strong.  Examples of deal announcements include:

• JLT won the DB and DC administration contract by Santander UK covering 100k employees
• Fidelity won the DC administration contract for FirstEnergy for 21k employees
• WageWorks expanded its contract with Lowe’s and is providing spending account administration and COBRA administration
• Towers Watson renewed its retiree exchange contract with Eastman Chemical Company
• Capita expanded its contract with Wood Group in the U.K. to include occupational health services.

RPO:

The level of RPO activity continues to be strong.  Like benefits administration, deals flowed steadily from the U.S. and U.K.  Contract examples in H1 include:

• FutureStep and TalkTalk: 2-year deal in the U.K. including internal and external recruitment as well as contractor and permanent roles
• Hudson and United Biscuits: 3-year multi-country contract covering end-to-end recruitment processes including specialist role recruitment and executive search
• Alexander Mann and Statoil: initially focused on Norway, the contract will extend to the U.K., Canada, North America, and South America to recruit ~5k hires per year.

Payroll:

Payroll continued its steady deal flow worldwide with wins across the mid and large market sectors.  Examples include:

• SafeGuard World and easyJet in the U.K. for 8k employees
• Aditro and Fennia in Finland for 1.5k employees
• MidlandHR and Hope Construction Materials in the U.K. for 800 employees.

Learning:

After a long hiatus, activity for learning services really ramped up in H1. Over the last few years, demand for learning services seemed to come mostly from the public sector.  H1 showed a healthy level of learning activity in both public and private sectors.  

MPHRO:

MPHRO activity was also abundant in H1, where the activity was centered around HR administration and payroll services.  Activity consisted of new contracts like Zalaris and Statoil for statutory leave and reconciliation of HR accounts (for Norway), travel & expense services (worldwide), and HR reporting.  Other activity included vendor changes such as NGA HR and BMS.  Also notable is the volume of mid-market MPHRO deals.

The level of M&A activity was in line with H2 2013.  Much of this was in the benefits and RPO areas, which is where we are seeing outsourcing activity.

Private sector activity outpaced public sector activity, which tended to focus around contract renewals.  Examples include Great-West renewing its contracts with the City of Houston and the State of Alabama.

Approximately one-fifth of the activity consisted of vendor changes including:

• Fidelity Investments winning FirstEnergy for DC administration covering 21k employees (formerly serviced by ING – now operating as Voya Financial)
• MassMutual Retirement Services winning a Taft-Hartley multi-employer retirement plan contract by Electrical Workers Local 466
• JLT winning Santander UK for DB and DC administration covering 100k employees.

The mid-market (<15k employees) surpassed the large market, accounting for nearly two thirds of activity.

The general theme around new offerings, including tools and features, was around facilitating retirement planning and savings:

• ING / Voya Financial launching a financial planning and budgeting tool to enable participants to prepare for retirement
• Fidelity’s new suite of tools for retirement planning including “Executive Insights” and “The On Plan Indicator” for employers, and “Easy Enroll & Easy Savings Program” and “Personal Progress Report” for employees
• Charles Schwab RPS launching exchange-traded funds for DC plan sponsors
• Bank of America’s retirement app, Face Retirement
• Fidelity expanding the use of NetBenefits to iPad mobile tablets and incorporating new features, e.g., peer comparison.

Partnership activity was flat year-over-year, but down relative to the last few quarters.  M&A activity, which has been quite active since Q3 2013 continued in both the U.S. and U.K. with notable mentions for the following:

• Mercer acquiring Transition Assist to expand its retiree exchange offering
• Great-West merging its DC administration business with Putnam following a reorganization by its parent
• JLT acquiring Ensign Pensions Admin (formerly MNPA) in the U.K. 

One final remark with regard to Q1 activity is Towers Watson’s announcement of moving its H&W administration business within its Exchange Solutions segment.  This change closely aligns all of Towers Watson’s administrative health benefits activities together.

As April comes to a close, Q2 appears that it will be just as eventful as Q1 in both the U.S. and U.K.  Stayed tuned for another quarterly summary and half year synopsis.

There were ~1,100 HCM professionals at ADP’s Meeting of the Minds last week, most being ADP clients. The conference began with ADP CEO Carlos Rodriguez stating the company's desire to be the market leader in global HCM. To address this goal, ADP is engaged in:

• Providing a suite of cloud based HCM, benefits, talent management and payroll platforms and services, assisting organizations in achieving a more standardized and integrated end-to-end HR platform environment and making it easier to manage international employees. According to the ADP Research Institute, the average global company has 22 HR and payroll systems making unification a top priority of HR leaders
• Focusing on providing an improved and more seamless user experience; a system demo was given of a new user experience covering pre-board, on-board, benefits enrollment, etc.
• Investing in platforms and processes to scale HR BPO
• Leveraging ADP’s global presence to offer organizations HCM, benefits, talent management and payroll wherever they do business.

The following are highlights of some meetings and sessions I attended.

US Comprehensive Outsourcing Services (COS)

• In 2013 ADP added 17 new clients (combination of new ADP clients and ADP single HRO service clients who became COS) with y-o-y growth of 15% from 2013 – 2014. The majority of clients are U.S. headquartered
• Across all of ADP’s ~98 COS clients, average client size is 12k employees, with newest clients averaging 15k employees
• All COS clients use both managed payroll and employee call center, most purchase time, 40% purchase benefits, and 3 clients use RPO services
• ADP's clients are primarily supported onshore though most also have a hybrid model that includes some offshoring of back-office administration from India and Manila. A few clients have chosen to be supported primarily from India
• No client employees are rebadged to ADP to support a newly awarded contract. However, where opportunities are available supporting other COS accounts, ADP will take some employees as requested by the client.

National Accounts Benefits Administration

The following are statistics on Annual Enrollment provided by ADP:

• Concurrent client annual enrollment open windows during the week of 11/8/13: 485
• Total annual enrollment projects over 19 weeks: 946
• Participant call center calls: 368.6k
• Overall enrollments for participants and dependents: 15m
• Enrollments per hour at peak: 3k

In pursuit of offering a more seamless user experience, ADP is focused on real-time integration between Benefits and HR including:

• Providing an improved user experience, with a greater range of tools to support employees
• Integrated cross-application reporting
• Increased compliance effectiveness

RPO

• The RightThing’s client retention is 98% and 2014 revenue growth is in the high teens
• The RightThing is experiencing growth in the financial services sector where ~45% of new hires are millenial's
• Approximately twelve of The RightThing’s clients are provided RPO in two or more geographies, including McGraw Hill, who started as an EMEA client and has expanded its use of RPO into the U.S. and LATAM. In addition, Ricoh, a U.S. client since 2012 has expanded into LATAM and Europe Ricoh’s vacancy rates previously ranged from 5-10% and are now <2%
• Approximately half of The RightThing’s contracts in Q1 14 were new clients to ADP and half were existing ADP clients adding RPO
• In LATAM The RightThing is growing at 100%. Its clients here are primarily U.S. headquartered with hiring needs in LATAM. However The RightThing recently signed its first Brazilian headquartered client to deliver RPO in Buenos Aires. The Buenos Aires office provides onshore services to LATAM clients, including in Portuguese for its new client
• In Europe The RightThing serves clients onsite (including in France and Italy) and onshore from its London office (~20 employees), and from ADP’s office in Prague
• Offshoring services provided from Hyderabad and Pune India are primarily for sourcing 24x7 in support of North America and Asia Pacific
• A few employees are also located in Japan and China.

Recruiting in a Mobile / Digital Age

• The RightThing performs ~200k hires per year and LinkedIn is the number one source of hires. Approximately ~14m people found their last job using social media and ~89% of all candidates use social media to look for a job. Industry-wide the top social sites are LinkedIn, Facebook, Twitter and Google
• It is becoming increasingly important for companies to provide mobile recruiting and for candidates to be able to receive text notification of job openings as well as to apply for jobs: 32% of candidates have applied for a job on a mobile device. With mobile, speed and responsiveness are imperative as ~40% of job seekers have abandoned mobile processes that are too slow
• Millenial's need instant gratification and instant feedback when submitting for a job or they will discount the employer. In addition, employment branding is becoming increasingly important for millenial's who need to be able to understand what it is like to work for a company
• Talent Communities are the “holy grail of recruiting”. Indeed, the top reason (81%) why global companies use social media for recruiting is in support of the development of talent pools.

Some interesting statistics on recruiting from the ADP Research Institute included:

• 73% of job seekers prefer weekly communication
• 58% believe a reasonable time between first interview and job offer is 1 - 2 weeks
• 1.7 is the average number of phone interviews job applicants believe is reasonable number
• 2.2 is the average number of in-person interviews that job applicants believe is reasonable.

Indeed social media is a key focus for the ADP Innovation Lab, which is focusing on using social media to strengthen the onboarding process by:

• Building social capability as part of the onboarding process with the goal of new hires becoming engaged before their first workday. Upon offer letter acceptance new hires can log in, learn about ADP and meet the team they will be working with, including their guide/buddy when they start, and get a jump on completing first day paperwork, etc.
• Enabling new hires to build a profile and import LinkedIn data to get started. Upon entering skills and interests they are pointed to similar people in the organization to enable them to start to integrate with communities of interest.

While it’s clear that Fidelity dominates the DC administration market in terms of revenues, recordkeeping assets, and participants, it is a much tighter race thereafter.  Consequently, the recent changes by Great-West Financial demonstrate the company’s desire to move up the totem pole and create some distance from its competitors. 

Prior to the recent activity, Great-West Retirement Services was focused on providing DC administration services including 401(k) and 457 deferred compensation plans to SMEs.  In October, the company added support for 403(b) plans for small and mid-market non-profits.

In 2013, total recordkeeping participants for Great-West Retirement Services were ~4.6m, and total recordkeeping assets were ~$178bn distributed approximately as follows:

• 57% 401(k)
• 33% 457
• 10% 403(b). 

Great-West Retirement Service’s client base includes both private and public entities such as Flagler Hospital and the State of Indiana.  Its renewal rate is strong, averaging around 4 years; recent renewals include the City of Houston and the State of Alabama.  

In late March, Great-West Lifeco, the parent company of Great-West Retirement Services and Putnam Investments, reorganized and decided to merge the DC administration businesses of both companies, but continue operations under separate brands. 

In general, Putnam’s business is much smaller in terms of participants (~250k) and assets under administration (~17bn), but focuses on mid and large market clients.  Therefore, the merger creates a more unified business with offerings available for all market segments.

The restructuring alone would have been beneficial, but Great-West didn’t stop there.  On April 3, it acquired J.P. Morgan Retirement Plan Services (RPS) business.  This acquisition adds ~200 clients and 1k employees and importantly strengthens Putnam’s large market 401(k) client base.  

Across the three companies, the total number of participants served is ~6.94m and assets under administration are ~$390bn.  While it’s a far cry from Fidelity’s 16.7m participants and $1.3 trillion in assets, it is enough to secure second place for the time being.   

There are many aspects of the recent changes and activity that position the company well for future growth.  And in addition to providing a comprehensive offering including 401(k), 403(b), and 457 plans, the new portfolio of clients, including the acquisition, strikes a better balance between SMEs and large organizations.  In terms of participants, it’s approximately a 70/30 split, and in terms of assets it’s nearly 50/50 with SMEs ahead.

For the meantime, all three businesses will operate as separate brands.  These extended capabilities and resources are positioning the company nicely for long-term growth with the potential to pull away from the pack.   

Specific highlights of the year in the U.S. included:

• Aon Hewitt: added 15 clients to its corporate health exchange (total number of clients is at 18)
• Mercer: added 52 clients to its private health exchanges (33 clients for its corporate exchange for active employees; 19 clients for its retiree exchange)
• Buck Consultants: added ~400k participants to its private health insurance exchange
• MassMutual Retirement Services: awarded 23 new Taft-Hartley multi-employer retirement plan contracts
• Fidelity Investments: increased assets under administration for not-for-profit institutions 102% to $204bn from 2008 through H1 2013; also awarded DC contracts covering 606k participants in H1 with assets under administration at $40.5bn, a 60% increase over sales commitments in H1 2012.

In the U.K., 2013 featured:

• Ceridian UK: added ~75 clients and ~570k members for its AE solution; also launched a knowledge center around AE
• Aon Hewitt: partnered with Zurich to launch an AE offering, A to Z
• Buck Consultants: launched an AE offering, Enrolment Pro
• JP Morgan: launched a dedicated DC pension business, UK SmartRetirement 
• Mercer: launched a Master Trust service through its Workplace Savings offering.

Activity so far in 2014 suggests that the year will be about growing new offerings as well as expanding the base. Contract awards announced already include:

• Fidelity Investments: DC admin contract with FirstEnergy (competitive win; 21k participants)
• Capita Employee Benefits: DC admin contract with Network Rail in the U.K. (2 schemes; 18.5k members)
• ING U.S.: DC admin contract renewal with State of Michigan (2 plans; 150k participants)
• Aon Hewitt: DB admin contract with Hozelock in U.K. (750 members; also includes actuarial and investment services
• MassMutual Retirement Services: Taft-Hartley multi-employer retirement plan contract with Electrical Workers Local 466
• ADP: wellness contract with Michigan Schools and Government Credit Union.

Other developments this year and things to watch for include:

• ING U.S. beginning its rebranding efforts to Voya Financial in Q2 and continuing the transition throughout the rest of the year
• Aon Hewitt adding clients to its recently launched SimPlus Savings offering, which is focused on helping plan sponsors and fiduciaries manage responsibilities and improve participant retirement readiness
• ADP’s success with its ACA-related tools and resources on its RUN platform for SMBs including its new FTE calculator, which helps clients determine their number of FTE employees and if they may be considered an ‘applicable large employer’ and be subject to the Shared Responsibility provision of the ACA
• Pensions AE communications being communicated through flexible benefits enrollment processes.

• Multi-process HR BPO services.
• Payroll Services
• Benefits Administration
• Recruitment Process Outsourcing
• Learning BPO.

The new Managed Services Program (MSP) demonstrates NelsonHall’s commitment to the HR field and in combination with the other HR programs, will provide the most comprehensive HR analysis on the market. Growth in the Recruitment Process Outsourcing is the highest of all the service lines. The scarcity of key talent and the increasingly global nature of employment markets has seen a market develop to even serve director and interim management positions. NelsonHall’s MSP program will evaluate:

• What is the market size and projected growth for the global MSP market by geography?
• What are the top drivers for adoption of MSP?
• What are the benefits currently achieved by users of MSP?
• What factors are inhibiting user adoption of MSP?
• Who are the leading MSP vendors globally and by geography?
• What combination of services is typically provided within MSP contracts and what new services are being added?
• What is the current pattern of delivery location used for MSP services and how is this changing?
• What services are delivered from onshore and which from offshore?
• What are the challenges and success factors within MSP?

The NEAT (NelsonHall Vendor Evaluation and Assessment) tool will be applied to the MSP service line. NEAT is part of NelsonHall’s “speed-to-source” initiative.  It sits at the front-end of the vendor screening process and consists of a two-axis model: assessing vendors against their “ability to deliver immediate benefit” to buy-side organizations and their “ability to meet client future requirements”.

The NEAT analyses themselves are based on a combination of vendor and client interviews. The vendors are scored against a wide range of criteria, establishing a number of scenarios, each with different weightings to represent a different business situation or client business need.

To add further value in speeding up the sourcing process clients are able to input their own weightings and tailor the tool to their requirements. So they might say:  “This set of weightings for this business need looks about right to me but I want to place more emphasis here". With this interactive tool, they can tailor the weightings to meet their own specific sourcing requirements.

If you would like to participate in or join the MSP program, please contact Guy Saunders. 

MPHRO

• We predict the Global MPHRO market will grow at mid-single digits CAAGR through 2017
• The Shared Service Transformation segment will continue to grow mainly as a result of contract expansions and renewals with existing clients, but the Multi-Country Standardization and Core Business Focus segments have the highest growth rate 
• MPHRO offerings will continue to be structured around a core model with recruitment services as the most popular add-on as companies focus on adding back talent; in the near-medium term, demand will increase for learning, performance and compensation administration
• Increased partnership activity, primarily for technology, with acquisitions focused on strengthening existing standalone HRO offerings (typically by vendors with $400m+ in HRO revenues)
• Higher levels of multi-shoring from offshore vendors as clients demand onshore and nearshore support; Philippines and China will grow as preferred offshore locations
• Workday use will increase as MPHRO providers such as Aon Hewitt market this platform as part of its offering
• Proportion of mid-market clients will continue to grow making up the greater share of new contracts and MPHRO pipelines

Benefits

• The global benefits administration market will grow at mid-high single digits CAAGR through 2017
• Demand for DB and DC core services will primarily consist of second generation contracts and beyond; H&W administration as well as additional H&W services, specifically health insurance exchanges and health and wellness services, will grow as a result to control costs and comply with changing legislation
• Vendors will increase headcount and add chat services from onshore centers to enhance delivery strategies
• Multi-country benefits admin activity by MNCs will continue to grow moderately with providers that can leverage existing benefits brokerage and consultant relationships

Learning

• Learning BPO (LBPO) market will grow at mid-high single digit CAAGR through 2017, led by the Government sector
• Selective LBPO contracts continue to outpace full LBPO, led by content development, including the conversion of ILT to e-learning. However, full LBPO continues its resurgence as clients re-invest in learning but do not want to rebuild their internal learning organizations and instead seek greater value by outsourcing a larger share of their learning if not in its entirety
• Client learning spend accelerates for job skill training and professional development for purposes of attraction, development and retention of talent
• Vendors continue to strengthen and integrate their talent management service and technology offerings. SaaS talent management continues to accelerate combined with LBPO and across all HRO service lines
• Clients budget for social learning and seek LBPO vendors for collaborative technology. Within two years, clients will also seek help to monitor and measure the effectiveness of their social learning programs
• ILT continues to remain important but e-learning delivery continues to exceed ILT, including increased usage of VLT for geographically dispersed workforces and m-learning to access content for self-paced e-learning on smartphones and tablets

Payroll

• Solid mid-single digit global growth, led by Latin America and Asia Pacific
• Compliance is increasingly important to reduce risk by ensuring adherence to ever-changing tax laws and regulations, for both domestic and multi-country payroll
• Multi-country payroll continues double-digit growth as MNCs look to standardize and consolidate onto one global platform with one vendor for consistency of process, technology and service for increased efficiency
• Mid-market outsourcing continues high growth due to demand for platform-based payroll
• Pricing is per payslip or per employee per month and is expected to decrease due to pricing pressures from payroll buyers
• Where MPHRO services are provided, payroll will continue to be the initial footprint

RPO

• RPO will continue to be the fastest growing HRO service, with mid-teen CAAGR through 2017
• Vendor consolidation and partnerships continue to expand into new geographies to meet demand for global RPO
• Talent shortages deepen resulting in increased employer branding and talent pool development. Vendors increasingly help their clients with a more robust on-boarding process that includes new hire and employee engagement, employee surveys, and retention strategies. More vendors perform internal hiring of employees for their customers and also play a larger role in recommending progression of employees
• Blended RPO and MSP, including temporary hiring, increases to develop optimal workforce strategies
• For deeper insight, please see NelsonHall’s Targeting RPO market analysis published soon

Business rationalization and expansion will be a tougher nut to crack. Organic growth cannot deliver the overall growth required to grow revenues and margin at acceptable rates. Xerox will need to acquire, but any large acquisition program will incur failed acquisitions. Xerox intends to keep the damage down by acquiring businesses at low prices, which is likely to cause it to miss big wins, but avoid big losses.

Finally, culling businesses (such as the student loan processing business, which is shrinking fast and reducing margins because overhead has not shrunk as fast as revenue) will be necessary for Xerox services to focus on its winning businesses. It is not clear anyone would want to buy the student loan processing business, making a cull impossible, and downsizing the only option. Xerox will need to focus on segments of its financial services BPO business that can be grown rapidly to offset the shrink in the student loan part of the financial services business. Other sunset businesses will have to be handled the same way if there are no bidders.

Xerox will succeed at bring its services operational performance up to its operational expectations, but it will take 3 years to accomplish.

Last week, I zeroed in on specific market activity within the payroll, learning and RPO service lines. Today, I am taking a closer look at H1 2013 activity in benefits administration and MPHRO and considering what we should expect in H2 2013 based on NelsonHall’s recent HRO Confidence Index.

Benefits Administration

Contract signings aside, there has been a plethora of activity within benefits administration in H1 2013, including:

• New offerings:
  • Mercer launching a private benefits exchange
  • Buck Consultants launching an AE offering in the U.K.
  • Secova launching a Coordination of Benefits (COB) audit offering
• Acquisitions: Wageworks acquiring Crosby Benefit Systems and Benefit Concepts to strengthen its H&W admin offering
• Partnerships:
  • Fidelity partnering with Extend Health for retiree healthcare services
  • JLT Employee Benefits partnering with Vielife for health and wellbeing services in the U.K.
• New technologies:
  • Xerox launching an account-based benefits portal, BenefitWallet, to assist with managing multiple health accounts on one platform
  • Aon Hewitt launching an absence management tool
• Educational resources:
  • Mercer and ADP both launching websites to provide information on healthcare reform
  • Ceridian launching an AE knowledge center in the U.K.

MPHRO

Though MPHRO market has been relatively quiet for some years, it is very much alive with new wins for IBM and ADP  and contract renewals at all the major vendors.

Many vendors have looking at geographic expansion, for example Aon Hewitt with its acquisition of OmniPoint Workday Services.  NelsonHall expects ADP to start making inroads in LATAM with its MPHRO services since it added RPO capabilities in this region from its acquisition of The RightThing and now expands its payroll footprint from the Payroll S.A. acquisition.

H2 2013

So what does the rest of the year have in store? NelsonHall’s latest HRO Confidence Index survey finds that overall expectations for HRO revenue growth remain at the same level as those reported for the last five quarters; with payroll leading followed by RPO. Top industry sectors for HRO services include healthcare, pharmaceuticals and high-tech. By geography, vendors are reporting increased confidence for revenue growth in Central and Eastern Europe and Central and Latin America.

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