Insights from Gallagher’s HR & Benefits Technology Consulting Practice
- Evaluate year-end financials. Check.
- Distribute W-2s. Check.
- File tax forms. Check.
- Review the statement of work on your HR technology service provider contract. Check… Wait. What?
That’s right. A review of the service agreement for your benefits administration, payroll, time or other HR technology platform should be an annual event, just like other business operations that keep your organization functioning smoothly. Whether a simple licensing agreement or a detailed outline of services, every technology contract includes a description of what you can expect from the provider as part of the agreement. This is typically referred to as the statement of work (SOW) and an annual review should occur regardless of the term of the contract. Most technology service contracts are three to five years, but it’s not uncommon for employers to file away the agreement upon signing it where it sits until a few months before the renewal or expiration date.
Why annually
What’s the point of an annual review given that contracts typically can’t be changed (without expanding service)? Most importantly, you want to be sure you’re getting what you pay for. While the basic functionality may work fine, there may be numerous small features, functions or services that you never activated or have fallen by the wayside. Questions to guide your review of the agreement include:
- How did the past year go relative to the technology service?
- Is it working as expected? Is everyone happy with the tool?
- Is the provider still delivering on the agreement and does that still meet your needs?
- Have your processes (or other things) changed, creating a need for different services?
In the bigger picture…
- Is the provider still viable and employing best practices?
- Can the provider support the future direction of the company?
Best time to review
There is no one right time to conduct an annual SOW review. It depends on the service, your business cycle, company size, etc. For benefits administration, the best time to review is right after the effective date of the new plan year. You’ve just gone through open enrollment so your needs (and any concerns) are top of mind. For ACA reporting (driven by the calendar year), the second quarter is a good time—after completing the IRS filing but in time to make any strategic changes. For performance and compensation, plan your review to immediately follow related core activities, e.g., annual pay increases, for the timeliest evaluation of the software effectiveness. All that said, it may simply come down to when the workload is lightest. Regardless, book the time and commit to it. Otherwise, something more pressing will always come up.
SOW review participants
As with timing, the people to involve varies. For a very small company or basic licensing agreement, this may be a task for one or two people. More complex organizations and functionality may call for a committee of stakeholders. Ideally, the review will involve end users (to give feedback) and decision makers. This need not be a complicated or time-consuming process. Plan for two to four hours (depending on complexity), half of which is for prep work (gather necessary information and flag key elements to review) and the other half for the actual review.
After the review
There are two outcomes of an SOW review: 1) Everything is great, and you can calendar next year’s review or 2) You identify opportunities or concerns. The best outcome is when you identify opportunities, i.e., services you’re already paying for that will help you optimize the technology. There are almost always ways to optimize, particularly with more sophisticated technology. Use this occasion to engage your service provider or an HR technology consultant to discuss how to get more from your technology. Read more in our article about optimization.
In cases where you’ve identified concerns, you will also want to engage the provider. But remember, tearing up your contract is usually not an option. A frank discussion, however, can rectify matters or confirm the need to make a change.
When you want to make a change
If the review leads to a decision to change providers, note your contract expiration date and then back out to when you need to begin the process of documenting your needs, identifying what’s in the market and making a purchase in time for a smooth implementation and transition. Your timeline should consider your budget and purchasing processes and the impact of change on other functional areas (and people). Our team can assist with any or all parts of this exercise. Poor purchase decisions and poorly planned implementations are the top reasons for failed technology implementations, according to Gallagher’s HR Technology Pulse Survey.
Be a good steward
Not reviewing HR tech SOWs on an annual basis is a lost opportunity. There is much your provider can do to help you archive your objectives, and, in many cases, this support is already part of the agreement. But it’s typically up to you to actively take advantage of it. Your HR technology is an important business tool to support your people strategy. As such, this calls for you to be a good steward of the relationship with your technology provider. An annual review of your agreement is the first step.
