Medium-sized companies have long relied on a range of specialized consultants to help with benefits and employee engagement. One consultant might handle the company’s retirement plan; another would focus on healthcare and insurance; yet another would manage the employee experience. Those days are numbered.
Due to a perfect storm of cost and complexity, many standard HR functions require more coordinated expertise than HR departments can provide on their own. In this environment, such organizations should consider a more strategic, streamlined process to providing benefits. Taking an integrated approach to rewards management controls costs more effectively, and improves efficiency and alignment with best practices.
Containing costs, particularly for healthcare expenses, is the primary argument for centralizing your benefits functions. Medical-related costs for companies are predicted to rise nearly 8% in 2025 over the prior year’s expenses. This marks the highest rate of medical inflation in almost two decades, and is based largely on increasing price tags, increasing specialty drug spend, and ongoing increases in mental health treatment. As healthcare costs have risen, those expenses have cut into employees’ overall compensation, effectively reducing take-home-pay. We expect that these expenses will continue to rise as a number of hospital systems and medical providers are renegotiating their contracts for the first time since the Covid-19 pandemic five years ago.
For companies to successfully manage skyrocketing healthcare costs, they will need to better understand how the forces driving cost increases will impact their employees’ benefits usage and experience. In addition, a deeper understanding of employees’ ongoing benefits preferences and healthcare needs can guide a company’s search for appropriate vendors, and play a role in negotiating with insurance brokers.
In addition to ongoing challenges around healthcare costs and optimizing reward cost, total rewards leaders are likely to face additional budgetary pressures. Those forces include rising compensation due to pay transparency and organized labor activities and increasing business costs due to new global trade policies. Most organizations will need to address these challenges without additional budgetary resources; in turn, total rewards leaders will need to rethink their strategies across all elements of total rewards, from pay and benefits to career mapping and employee well-being, in order to deliver the greatest impact without investing additional dollars.
Beyond cost, U.S. employers face an increasingly complex regulatory environment that is particularly taxing to medium-sized HR teams. New laws around pay transparency, many of which vary by state and are further complicated by remote work, make it challenging for HR leaders to ensure compliance. Leave programs have increased in complexity as federal, state and even local regulators have established new regulations for PTO that encompass parental leave, medical leave, and caregiver leave. As a result, companies that operate across multiple jurisdictions have found it more and more difficult to monitor and maintain compliance with leave regulations. To add another layer of intricacy, PTO offerings can vary widely based on industry standards and geographic location, making it even more essential for employers to understand how to craft leave programs that attract and retain top talent.
Two years ago, WTW’s Leave, Disability and Time-off Trends Survey predicted an increase in the number of U.S. employers that would be outsourcing their leave programs due to new regulations. That trend will almost certainly continue, with companies relying on expert input to create equitable, legally compliant PTO policies that remain attractive for new and prospective employees without leading to excessive costs.
Medium-sized companies will have to think big in order to survive and thrive in a complex, competitive labor market. By combining expertise and technology, consultants and employers can conduct a more strategic approach to total rewards that addresses the rising costs across compensation and benefits without negatively affecting employee satisfaction.
Consider these actions:
With benefits costs at a tipping point, it is imperative for medium-sized employers to take a more holistic attitude towards total rewards, with a focus not only on broader trends but also on data and research in support of constructive changes. Rewards professionals must chart new and more effective approaches to pay and rewards if they want to elevate their value as decision-makers who can move their business forward by attracting, engaging and retaining key talent.
