Reviewing your annual operational maintenance checklist is critical to the health of your organization. Some steps include:
- 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. What?
That's right. Reviewing the service agreement for your benefits administration, payroll, time or other HR technology platform annually, just like reviewing other key operations, is critical to keep your organization functioning smoothly.
Whether a simple licensing agreement or a detailed services outline, every technology contract includes a description of what you can expect from the provider, typically referred to as the statement of work (SOW). Organizations should review the SOW annually, regardless of the terms of the contract. Most technology service contracts remain in effect three to five years. Yet, it's common for employers to file away the agreement upon signing it, where it sits until a few months before the renewal or expiration date.
Why review service agreements 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 of the service may work fine, there may be small features, functions or services you never activated or that fell by the wayside. Questions to guide your review of the agreement include:
- How did the past year go relative to the technology service?
- Is the technology working as expected? Is everyone happy with the tool?
- Is the provider still delivering on the agreement, and does it still meet your needs?
- Have your processes or other factors changed, creating a need for different services?
Focusing on the bigger picture, ask yourself:
- Is the provider still viable and employing best practices?
- Can the provider support the future direction of your organization?
- Is now the time to ask for a Service Level Agreement (SLA)?
Best time to review statements of work
There's no one right time to conduct an annual SOW review. Timing depends on the service, business cycle, company size and other variables. 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 Affordable Care Act (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, such as annual pay increases, for the timeliest evaluation of the software's effectiveness. Regardless of the HR function, timing may come down to when the workload is lightest. Book the time and commit to it. Otherwise, something more pressing always will come up.
Statements of work review participants
As with timing, the needed participants vary. For a very small company or basic licensing agreement, SOW review 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 decision-makers and end users to give feedback. The review need not be a complicated or time-consuming process. Plan for two to four hours, depending on complexity. Expect to spend half the time on prep work: gather necessary information and flag important elements to review. Spend the other half of the time doing the actual review.
After the review
An SOW review yields two potential outcomes:
- Everything is great, and you can schedule next year's review.
- You identify opportunities or concerns.
The best outcome is a step beyond everything is great — identifying new opportunities associated with 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.
You'll also want to engage the provider when you've identified concerns. Keep in mind that tearing up your contract isn't usually an option. A frank discussion, however, can rectify matters or confirm the need for changes. Part of that discussion might include the addition of an SLA.
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 the date when you should begin documenting your needs, identifying what products are available in the market and making a purchase decision 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. In our experience, poor purchase decisions and poorly planned implementations are the top reasons for failed technology implementations.
Be a good steward
Failure to review HR tech SOWs annually is a lost opportunity. Your provider can do much to help you achieve your objectives and, in many cases, this support already is part of the agreement. But it's up to you to take advantage of it.
HR technology is an important business tool that supports your people strategy. As such, it demands your attention and calls on you to be a good steward of the relationship with your technology provider. An annual review of your agreement is the first step.
Gallagher can help
Talk to your Gallagher advisor about a strategic approach to purchasing new HR technology or optimizing the technology you already own.
