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Smart Ways to Get More While Spending Less
The credit crunch and economic downturn have taken a merciless toll on the U.S. workforce. The number of unemployed people has grown by 3.6 million during the last 14 months. Today, even financially healthy organizations are hunkering down.
Before reducing head count or making painful cuts to health and retirement benefits, some companies perform a kind of triage, freezing pay and hiring, paring down paid leave, and consolidating offices. Those are cost-cutting strategies, to be sure, but not the only options. And herein lie opportunities for human resource professionals to shine: Stave off lay-offs or major benefits cuts and you’ll prove––to top executives, managers and all employees––that you have business savvy and a heart, maintains Brenda McChriston, SPHR, of Spectrum HR Solutions, a Baltimore consultancy.
With so much at stake, McChriston and scores of other HR professionals offer tips on how companies can control HR spending without sacrificing their competitive positions, cutting jobs, or eating away at take-home pay or the perks employees value most.
First, a few caveats: Avoid creative accounting. Don’t build the illusion of belt tightening by delegating responsibilities and shifting funds for training, hiring or other HR activities to line managers. McChriston and others warn that if you unload too much of your budget or responsibility, you will be on the street. "I see people doubling up on their duties and cross-training, not giving their work away," McChriston says.
Similarly, be honest with yourself and your finance officer. Sure, a 20 percent cut to your $5,000 tuition reimbursement benefit may look severe and create the impression you’re serious about cutting costs. But if $3,000 is the most an employee has ever spent, you’re not saving money. Meanwhile, avoid the trap that Lenny Sanicola, benefits practice group manager at WorldatWork, describes as "death by a thousand knife wounds." Piecemeal cuts eat away at morale, and employees get nervous waiting for the other shoe to drop. "As an employee, I would rather hear all the bad news at once," Sanicola says.
And don’t be shy about tapping employees for ideas about cutting costs. "Employees come up with all sorts of creative ideas," McChriston says.
That’s it for the warnings. Grab a cup of coffee, set the spreadsheet aside for the moment, and discover how you can spend less and save more.
Pay and Benefits Checkup
Start cost-cutting where spending is increasing the fastest—oftentimes insurance—and make sure you’re getting value from everything you pay for. Here’s how:
Price check. Insurance premiums are partly based on how risky your carrier thinks you are, says Dixon Greer, a San Jose benefits consultant. Fend off rate hikes by challenging your insurers’ risk assessments. Greer recalls one particularly dramatic instance where a hotel chain reversed a steep rise in its life insurance premiums after auditors proved that its carrier unfairly inflated its risk by taking into account an executive who was killed in a freak accident involving a runaway ice cream truck.
In addition, audit your plan annually for duplicate payments and enrollee eligibility to keep risk ratings and premium increases reasonable.
Generic advice. Lower drug costs by requiring that prescriptions be filled with generic drugs when available. You can still maximize employee choice by offering a tiered payment option allowing enrollees who prefer name-brand products to pay more. Think twice before allowing pharmacies to substitute generics for "similar" drugs when the generics may not deliver the same results, managed-care experts warn. If the proxies aren’t as strong or effective, your costs could increase. To further manage costs, limit coverage for the latest specialty and biotech drugs; they tend to be particularly pricey, Mercer Consulting notes in a 2008 report.
Prevent double-dipping. You may be able to recoup hundreds of thousands of dollars paid to an injured beneficiary who received a settlement by exercising so-called subrogation rights. Such provisions require beneficiaries who recover money from a third party, such as an individual or company responsible for an auto accident, to reimburse their insurer for funds expended on their behalf. But this strategy can backfire. Retailer Wal-Mart was vilified in the press for seeking reimbursement from an employee who suffered brain damage when her car was hit by a truck in 2000. Last year, the company dropped its effort to collect from her multimillion-dollar settlement with the trucking company, even after receiving the green light from a federal judge.
Run from cover. Reduce benefits for employees’ spouses and partners who have access to coverage under their own employers’ plans. Pay employees to opt out of your health plan.
Lose what you don’t use. Opt out of providers’ cookie-cutter, "bundled" packages that are loaded with benefits, such as orthodontics, that might not suit your employee age group. Reject coverage for specific employee assistance program (EAP) services that few employees use and renegotiate a lower price that includes only what you want.
Reference check. Don’t pay EAP vendors for referrals to child care or elder care services if identical information is available free from social service agencies and other community-based groups.
Use old-age wisdom. If your company offers retirees medical insurance, coordinate benefits with Medicare to avoid duplicating coverage. In early 2008, the U.S. Supreme Court refused to hear further arguments in the case of
AARP v. the Equal Employment Opportunity Commission, putting to rest long-standing doubts surrounding employers’ legal right to reduce benefits for Medicare-eligible retirees.
Give medical tourism a spin. While medical tourism—traveling abroad for cheaper health care—has yet to make inroads with U.S. employers, some employers and medical experts say the arrangement has potential. Several Blue Cross affiliates and Aetna plans cover some essential, preapproved procedures when done abroad to cut costs. Maximize patient care and minimize risk for employees who receive treatment abroad by following the American Medical Association guidelines for insurers and employers, issued in June 2008.
Limit paid leave accruals. Like a good wine, banked paid leave gains value over time. Reduce financial exposure by narrowing the "use or lose" window. Meanwhile, keep employee options open by allowing workers who are out of leave to take unpaid time off.
Pay attention. Direct deposit reduces paper and check processing costs. Increase savings by making it mandatory for pay and expense reimbursement, if your state allows. Pay workers who do not have bank accounts via pay cards. Reduce administrative costs further—and retain control of money longer—by reducing pay frequency from weekly or biweekly to twice monthly or monthly. Before making this change, take into account how it might affect your lowest-paid workers, who often count on a weekly paycheck to make ends meet.
Shift pay. Save on payroll taxes by taking at least a portion of the money you would have put toward pay raises and using it to beef up your contribution to employee health insurance premiums.
Work well. Take a hard look at wellness benefits, and scrap programs that don’t deliver. Compare the time it could take to see results from programs such as nutritional counseling for diabetics against other metrics such as employee turnover rates. If employees are likely to be gone long before you are likely to see results, the benefit may not be worth its cost. Similarly, if you’ve been subsidizing a weight loss program but employees aren’t trimming their waistlines, cut your company’s losses by dropping the subsidy. Extend the best cost-cutting wellness strategies to dependents covered under your health plan—including successful weight management programs.
Exercise restraint. Track employee use of on-site fitness centers. Shut down infrequently used centers. Sell the equipment and put the proceeds, including savings on maintenance and cleaning, toward alternatives such as employee-organized walking groups or gym membership subsidies for workers who actually work out.
Seek discounts. Negotiate benefits that won’t add to your bottom line such as discounts on tickets for movies, plays and sporting events, buyer’s club memberships, financial and legal counseling, and fitness center passes. Publicize these discounts boldly and make them easy to use.
Recruitment, Retention and Training
Recruitment may not be your top priority now. But you must still replace key workers who leave through normal attrition. Seven tips to minimize costs:
Go online. Use free recruitment sites such as Craigslist.org and target paid online recruitment efforts using industry-specific job sites. But don’t rule out paid recruiters yet. They often get discounts from job boards and may save money in the long term, especially for staffing new facilities.
Get centered. Scale down administrative costs and maximize recruiters’ volume discounts by centralizing recruitment.
Save time. Speed hiring and reduce administrative costs by allowing job applicants to schedule interviews online.
Hire locally. Encourage employees to refer friends by offering finders’ fees.
Interview over the Internet. Reduce travel costs by screening promising nonlocal job candidates via "webcam." Basic equipment can be purchased for as little as $10. Inovahire.com, a recruitment web site launched late last year, hosts free webcam conferencing, so employers don’t have to invest in software.
Spread knowledge. Reduce training costs by enlisting knowledgeable staff to share their skills in formal training sessions. Meanwhile, opt for lower-cost paid options including e-learning and other computer-based programs. No- or low-cost training may be available through local workforce development agencies.
Get your money’s worth. Require employees who receive education benefits to remain on the job for a specified time or to reimburse the company if they leave early.
Technology and Contract Management
Your mailbox probably overflows with ads for software that vendors say you can’t afford not to buy. But unless a vital system hovers on the brink of meltdown, hold out. Three options to tide you over and limit costs on new purchases:
Open up. Cut back on software license fees by switching to free "open source" alternatives. For instance, Google Docs allows users to create documents and spreadsheets, store them and collaborate online for free.
No special requests. Think twice before asking a vendor to customize an off-the-shelf product to fit your existing processes. It raises costs at the front end and could cause glitches that will compromise service later on.
Bargain hard. Establish a policy of rebidding all vendor contracts and leases. During a recession, prices, as well as payment terms and schedules, become negotiable. Take care in designing an all-inclusive proposal: Add-ons can cost you. And involve vendors in proposal development—they may offer money-saving tips.
Cut Costs, Save a Tree
If you have responsibility for office facilities or commuting benefits, leverage employees’ growing interest in saving the environment. These tips are easy on your budget and the planet:
Discuss this Article
Share budget advice with your peers in the online discussion below. Every participant who offers money-saving advice will receive $5 off any order placed on the SHRMStore web site. Contributors will be mailed a promo code to use online to receive $5 off a minimum order of $25. Offer good on a one-time purchase, online orders only, by Dec. 31, and cannot be used toward shipping or tax. Please enter your full name so we can send you your promo code. If you would be willing to discuss your additional cost-savings ideas with SHRM writer Rita Zeidner, who will be continuing to write about cost-saving strategies, please contact her directly at
firstname.lastname@example.org. Include your idea, name and contact information. She will get back to you if we have not already written about your idea recently.
Rita Zeidner, senior writer for HR Magazine, served as writer and project manager for this cover package.
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