CHAPTER 24: INTERNET SYSTEMS FOR SALARY AND BENEFITS ADMINISTRATION Overview: A review of the latest trends in the online administration of pay and benefits, including federal regulation for electronic document filing. Corresponding courses: 02 Online Compensation and Employee Benefits Administration Online administration is changing the way Human Resources does business. In the same way ATMs have changed the banking industry forever, corporate intranets are becoming the preferred method of communication for employee compensation and benefit programs. An increasing trend is to take this technology a step beyond mere communication and extend it to the administration of salary and employee benefits at all levels. IMPORTANT INITIAL DECISIONS Before integrating an online salary benefit and administration system, 2 important decisions must be made regarding the online structure: Internet vs. intranet and static vs. interactive sites. Internet vs. Intranet Whether information is loaded and captured on a company's internal network (intranet) or through an Internet site is largely a decision influenced by corporate technical expertise. Additionally, when the Internet is employed, the organization must decide whether to disseminate and capture data by the use of the company's own website or to out-source this function to one of the growing number of vendors specializing in this service. Static vs. Interactive Static sites are intended to allow users to retrieve information, without any interaction. Static sites are utilized to educate employees as well as distribute forms and plan documents such as Summary Plan Descriptions (SPDs). Interactive sites are intended to give users the added ability to perform tasks specific to their benefit plans, including plan or fund selection and updating personal information such as family status and address changes. Security Concerns Information regarding employee benefit plans or salary levels is material that should not be known to the public at large. It is the fiduciary responsibility of the company and plan administrator that personal information of plan participants remain confidential. This information includes salaries, health plan choices, medical conditions, retirement fund choices and balances. It is imperative that the systems employed to implement online benefits administration do not allow access to unauthorized individuals. Limiting Unauthorized Access To ensure that access is limited to appropriate individuals, a password system, or series of personal identification numbers (PINs) must be implemented. Each participant's access code must be unique, and specific to that individual, and it should not be based on information readily available to the public at large. For example, birthdates and even Social Security numbers do not guarantee access will be limited to appropriate personnel. Therefore, it is recommended that a random number password be assigned to each participant, and that the ability for each participant to change that password be available. An additional concern, especially where employees access information at work in shared work spaces, is the "unintended onlooker." This concern over employee privacy has led employers to establish separate rooms or sheltered kiosks in which to give employees access to online benefit plan information. Host or Outsource? Utilizing a professional hosting service for a company website, or outsourcing benefits administration to a vendor will assist in addressing these concerns, as it becomes the contracted party's responsibility to maintain firewalls and verification protocol. Other measures such as data encryption may fulfill necessary requirements. Many organizations find they spend more time and money to ensure there is no breach in security than on the design of the system itself. SALARY ADMINISTRATION Web technology offers an excellent tool to replace paper-based wage or work history reporting. Employers now have greater flexibility in creating salary trends and historical reports, while at the same time reducing redundant work. On a static basis, online processes can allow information to be delivered in a timely manner to Human Resources or management personnel. This can be done as simply as creating a spreadsheet to track, sort and report data in programs such as Microsoft Excel, and making this spreadsheet available to appropriate personnel using the company intranet, or network server. However, to take full advantage of online technology, the employer should consider additional capabilities. Information Storehouse Online administration can go beyond storing salary history reports. Technology can provide online versions of:
Additional information such as attendance records, vacation and sick time can also be reported to Human Resources and Department Managers. This not only allows management to view data, and make appropriate decisions, it can facilitate the approval process and eliminate the need to shuffle confidential paperwork from desk to desk. This actually allows companies to increase confidentiality in these transactions. On an individual basis, employees can also be given online access to their own accounts. This y provides an online version of their employment agreement and history, and allows employees to track how much vacation and sick time they have used and accrued. Up-To-Date Salary Information In today's competitive market, it is more important than ever for employers to have up-to-date salary information. "Free salary data" is available on almost every web-based job posting site. While this information is not always reliable, it can create expectations or discontent among employees. It is important that employers be armed with reliable, current salary information when hiring and performing performance appraisals. In the past, companies had to perform a "salary review" at least once every 5 years (usually more frequently) in order to keep salary ranges competitive, but not overly inflated. This was not only time consuming, but extremely expensive, as it was usually done by a consulting company. With online salary data readily available, salaries can be easily reviewed on an annual basis (or more frequently) to ensure they are in keeping with industry norms. Online Salary Data Criteria In order for salary data to be considered an accurate representation of data, it should provide:
To learn more about finding reliable sources of online salary data, see DLC Course 73: Analyzing Compensation Survey Sources. BENEFIT PLANS ADMINISTRATION In addition to salary administration, online technology makes it possible for organizations to communicate their benefit plan information at a speed and accuracy level never seen before. Advantages For HR Integrating an Internet-enabled technology into an employee benefits plan provides the following benefits for Human Resources departments:
Advantages For Employees From the employee perspective, online health plan administration provides added value in the following areas:
Employer Access In a majority of organizations, technology is already being utilized for many aspects of the business. Electronic mail (email) is common for most businesses, as is the sharing of documents on a company intranet. Many companies: utilize websites for marketing; already have an existing infrastructure on which to build an online benefit administration system; are computer literate; and are willing to use the web to replace traditional means of doing business. Online administration of benefits allows employers the ability to maintain an employee roster or census online, keep them completely up-to-date, transmit them electronically with ease. With the use of static employee benefit sites, information, forms and plan documents are more easily disseminated to employees electronically than by paper. This information can easily be printed on demand by the employees, eliminating the need for replacing them if they are misplaced. Online benefit sites can also provide self-service answers to employee benefit questions, freeing up Human Resources staff. Additionally, interactive sites can provide users the ability to make plan selections and fill out forms online, eliminating the need for organizations to employ staff members to perform data entry, and ensuring greater accuracy and confidentiality. However, this also creates the need for verification, and electronic signature protocol must be adhered to. This will be discussed later in this course. Of course, outside of open enrollment time, plan selections by employees must be limited to satisfactory proof of a qualifying event. Employee Access Some of the easiest things you can provide to members via an online benefit administration system are plan documents. With an online system, employees have access to these documents whenever the need arises. They have the freedom to read them online or to print them, and there are no issues with misplacing them as they are always available. During open enrollment time, employees are required to make decisions regarding their benefit plans and to complete enrollment forms. Often, these decisions involve other family members. With online access, this information can be viewed by family members regardless of where they are located, and forms can be completed and transmitted online. Online access for employees also provides access to answers regarding benefit plan design on a 24-hour basis. If, for example, an employee needs to know a prescription copay prior to going to the pharmacy, she need only logon to the online benefit site to access that information. How Companies are Using Benefits Websites Design of a benefits site is best undertaken with input from the Human Resources Benefits department. Benefit information can be difficult to understand, and the decisions made by the employees usually affect their benefits for the following year, so it is important that information be delivered quickly and with clarity. The range of applications for benefits sites is wide, but generally, use of websites for benefit information falls into 3 categories:
Online publishing In addition to the distribution of forms and plan documents, online benefit sites are being utilized to provide information on: self-care and wellness programs, brochures on optional products, meeting schedules, answers to frequently asked questions, and employee newsletters. Organizations usually begin with a static site that gives employees access to a wide variety of information on a read-only basis. Once acceptance of and even dependence on the site is gained, organizations make the move to an interactive site that allows employees to perform benefit transactions online, make changes in personal information, review plan details, and attend virtual meetings without leaving their desks. Web technology provides an efficient alternative to the delays and frustrations that occur with waiting for employee meetings, telephone calls or written communications. Transaction applications Another advantage of online benefit sites is the ability to provide a single location for links to various carrier websites, and a complete listing of contact names and phone numbers. Without the necessity of remembering the web address for each carrier, employees have single site access to cumbersome data like provider directories. Printed directories are bulky, confusing and more often than not, out of date as soon as they are printed. Accessing provider information online gives employees more accurate information from which to make selections regarding plans and primary care providers. Group applications Group applications make it possible for employees to communicate with one another, receive updates and ask questions, whether down the hall, or in another state. Newsgroups facilitate the direct exchange of information, making updates available to all members simultaneously, regardless of their locations. These are particularly valuable in companies with employees in remote locations. We will now examine two type of benefit plans that may be administered online: retirement and employee health. Retirement Plans Employee Retirement Plans, involve connectivity between three parties: the employee, employer and fund administrator. The largest benefit to utilizing online technology in retirement plans is to facilitate this connection. Online retirement plans can allow employees to truly take charge of their plans. Online technology puts the following functions at the employee's fingertips: transaction history, online reports, fund (investment) selection online, fund performance information, account balance and individual fund selection performance, and retirement "calculators" for future projections. How employers benefit Recent surveys Hewitt Associates indicate 55% of existing 401(k) plans provide online access, with an additional 27% planning to do so in the next 12-18 months. This trend continues for several reasons: cost savings, time savings and tracking. Cost savings. The use of online technology accounts for the majority of cost saving measures employed by plan sponsors. Employers are reporting savings of hundreds of hours in administration each year as a result of going online. Time savings. In this age of fast food, one of the biggest challenges in employer sponsored retirement planning is answering employees questions in a timely manner. Self-service online programs save Human Resource staff time, by allowing employees to answer their own questions. These sites have also resulted in more accurate and timely transactions. The result is a more streamlined process that allows plans to offer more selections, while assisting in administration and employee recruitment. Tracking. Online retirement plans also allow employers to track investment trends. This allows the company to keep up with the needs of employees and, at the same time, determine when additional training may be necessary to help employees manage their investments. How employees benefit As Americans become more savvy regarding retirement plans, there is an increasing need to provide quality information online. Many employees are expecting the same flexibility in their 401(k) account that they have in other financial investments. Self service. Employees today want a 401(k) plan that makes it easy for them to make smart retirement choices, and the control to make decisions when they want, where they want. When additional information is needed on your account or fund performance, an employee no longer has to wait for a response from Human Resources. Participants are given an active role in their retirement, allowing them to make informed decisions and changes whenever they feel comfortable enough to do so. A Persumma Financial Study reports that "this information availability and plan flexibility is also having an effect on career choices, as studies show 74% of employees say a company's retirement plan plays a part in choosing where to work." Ease of use. In addition to the availability of information, participants benefit from the ease of use. There is no more need to fill out forms (in triplicate), and get them to your Human Resources Department prior to the deadline. Transactions can be accomplished with a click, and updated in real time. Criteria for online retirement plans Online retirement plans serve employees best when they are interactive, not static in nature. They should be dynamic and flexible. Online retirement plans should:
Most major investment banking companies provide online administration of retirement accounts. For an example, view Principal Bank's business website at: www.principal.com/biz.htm. Employee Health Plan Administration One of the greatest boons for Human Resources is the move to online documentation and communication of employee health care plans. This shift is due to 3 major pieces of federal legislation:
We will now examine how these acts impact online health plan administration. Department of Labor guidance on SPD distribution The Taxpayer Relief Act of 1997 instructed the Department of Labor (DOL) to provide specific guidance on the use of electronic media in benefit plan administration. The DOL responded to this mandate, and effective June 1, 1997, issued proposed regulations regarding plan fiduciaries duties under ERISA guidelines. The initial regulations only applied to the distribution of Summary Plan Descriptions (SPDs) and Summary Material Modifications (SMMs) under health plans. Final Electronic Distribution Rules were effective October 20, 2002. These final rules allow for electronic document distribution to worksite locations as well as "beyond the workplace." Under these guidelines, there are two types of plan participants:
These rules let organizations furnish documents via email, a website, CD-ROM, DVD, or other electronic media. You must give participants notice that documents are being distributed AND tell them the significance of the documents. Your company cannot provide electronic documents at the worksite through kiosks. Under these final rules, electronic documents do NOT have to look exactly like their corresponding paper documents. In addition, participants no longer have to be able to convert electronic documents into paper form. However, paper documents must still be made available. Receipt of delivery. However you choose to deliver documents, the delivery system must include an actual receipt of delivery so that the administrator knows if the information reached the intended recipients. This could mean a return of receipt function or an "undelivered" email function. Website delivery. You can distribute documents via websites so long as participants are notified that the documents are available. You must send them a written or electronic notice directing them to the website. These online documents should remain on the website for a reasonable period of time after participants are notified. Links to the document should be prominent on the site's home page. Also you should provide a way that participants can replace lost or forgotten passwords. COBRA
added. While
electronic distribution was once limited to SARs,
SPDs, and SMMs, it has been expanded to permit the distribution of
notices for HIPAA, the Women's Health and Cancer Rights Act, and
COBRA. However, there are
strict rules involved in distributing COBRA notices via email. HIPAA regulations HIPAA has been described as the largest paper reduction legislation in the history of our country. In addition to replacing paper with electronic transactions, it will assist in the replacement of many "processes" used in the benefits administration process.
Electronic Data Interchange regulations HIPAA regulations originally enacted in 1996 were modified by the Health Care Financing Administration (HCFA) to implement the Electronic Data Interchange (EDI) and Medical Code Standards in August 2000. Compliance with these regulations was required by October 16, 2002 for most plans. The new regulations require most health plans to conduct "standard" health care transactions electronically, or to retain a health care clearinghouse that can do so on their behalf. Regulations for Administration Simplification, including privacy and security, are also effective in 2002. Results. Due to these regulations, health plans are (or soon will) accept electronic transactions from not only physicians and hospitals, but for eligibility and benefit inquiries as well. Claims status and coordination of benefits between health plans will occur electronically. As a result, the majority of health care organizations are implementing changes to all of their systems, making the electronic submission of data such as eligibility and claims inquiries not only possible, but in some cases mandatory. Limitations. At the present time, employers that simply pay for health coverage provided by a third party are not required to transmit all data electronically. However, an employer (like a multiemployer fund) that self-administers its health plan must comply with the new EDI requirements. In addition to health plans, the final EDI rules state that limited scope coverages such as dental and vision plans are also required to comply with the new online transmission regulations. Electronic signatures In the new age of technology, various "electronic signatures" have become as acceptable as pen and paper transactions. On June 30, 2000, President Clinton signed the Electronic Signatures in Global and National Commerce Act. The act took effect in October of 2000, but to a large extent simply solidified procedures that had already been put into practice by a wide range of insurance and banking entities. The Electronic Signature Act will have a significant impact on the administration of benefit plans online. The Electronic Signature Act gives electronic signatures and online transactions the same legal force as those created or entered into with pen and paper. The act does not dictate the type of technology the parties use to create the electronic signature, or transaction. Definition. The term electronic signature is defined as: "an electronic sound, symbol, or process attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record." This definition could encompass pushing a specified number or code on a telephone key pad, pressing "I Accept" on a web page, or sending an email indicating the acceptance of terms. The key is that the person executing the transaction intended to sign the contract. The act also authorized the use of electronic records in consumer transactions, making the provision that electronic signatures may be substituted where ever a signature is required in writing. The act does not, however, require a person to use or accept electronic signatures. Impact of the Electronic Signature Act. The impact this act has on online employee benefits is broad. Plan administrators may design and implement systems for paperless administration with a higher degree of confidence that these transactions will be up to legal challenges. For example, many employers have been reluctant to move entirely to online benefit plan enrollment requiring a financial (monthly) contribution, because of uncertainty as to whether prevailing wage laws requiring written authorization for withholdings would apply. Because the act gives the same legal status to signatures provided electronically, as those provided on paper, this consideration is less significant. Limitations. While technology is certain to be a major factor in the future of Employee Health Plans Administration, it does have its limitations. For example, the Electronic Signatures Act contains limited provisions regarding notary verification. At present, there is no technology to accurately replicate a notary public mark. Also, in many cases, plans will require additional documentation, such as receipts or other plan benefits paid (explanation of benefits). With the decrease in the cost of scanners, a solution to this may be close at hand. Until this occurs, at least a portion of benefits administration will have to remain in the traditional, low-tech manner. IMPLEMENTING ONLINE ADMINISTRATION It is clear that online technology will play a large role in our future. As employees become more educated, they will demand greater service and flexibility on the part of employers. The use of online administration can facilitate this growth, and take it to the next level. Most organizations implement online salary and benefit information in three stages:
Stage 1: e-Information
In the e-Information stage, the company intranet is used to provide information to employees. Brochures on employee benefits, and legal documents such as Summary Plan Descriptions and personnel policies are available to employees online. This system realizes savings by eliminating printing and distribution costs, and making up-to-date information always available to employees. A great deal of companies are already at this point, at least to some extent. Stage 2: e-Interaction In the "e-Interaction" stage of online benefit administration, front-end applications such as benefit enrollments, surveys, interactive training guides or other gathering of information is performed online. After the front-end exchange where data is entered by the employees and captured online, the remaining benefit process is performed in the traditional manner. Applications, changes and other data is entered by employees; but following that, the information is calculated, forwarded and distributed manually by the use of traditional programs. For example, all employees may enter health plan benefit selections online, then the information is imported into a traditional Excel spreadsheet and manipulated to create a census. The e-Interaction process produces savings in:
It is still, however, fragmented and time consuming. Stage 3: e-Commerce The advanced stage of online benefit administration is characterized by integrated transactions where all personnel and plan databases are linked. Data is entered by employees and disseminated immediately to the appropriate parties in the correct format. Information regarding health plan selections is entered by the employees and transmitted immediately to the applicable insurance carriers with complete records, reports and census data delivered automatically to Human Resources. The result is a lower cost, more consistent and accurate process for employee benefits, retirement and salary administration. Ultimately employee benefit programs are evolving to become more of an employee responsibility. Technology now allows employers and employees to partner together to develop programs beneficial and cost effective for both parties. Internet Based Benefits & Compensation Administration Thomas J. Atchison ERI Economic Research Institute Library of Congress Cataloging-in-Publication Data HF5549.5.C67B45 1987 658.3'2 86-25494 ISBN 0-13-154790-9 Previously published under the title of Wage and Salary Administration. The framework for this text was originally copyrighted in 1987, 1974, 1962, and 1955 by Prentice-Hall, Inc. All rights were acquired by ERI in 2000 via reverted rights from the Belcher Scholarship Foundation and Thomas Atchison. All rights reserved. No part of this text may be reproduced for sale, in any form or by any means, without permission in writing from ERI Economic Research Institute. Students may download and print chapters, graphs, and case studies from this text via an Internet browser for their personal use. Printed in the United States of America
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