Leave management: Insourcing, co-sourcing, or outsourcing?

Leave management is a highly regulated HR function that every organization must accommodate. Generally, when organizations evaluate employee leave management, the key goals are compliance with FMLA, ADA, and other relevant leave laws, accurate tracking and reporting, a smooth process, and minimal disruption in the workplace. Determining the best option for managing employee leave depends on four crucial variables.

  1. The size of your organization
  2. The frequency and complexity of leave requests
  3. The organization’s financial resources
  4. The expertise of the organization’s HR team

Company culture, business strategy, and long-term goals are also important considerations to factor into an approach to leave administration.

Broadly speaking, there are three leave management options: insourced, co-sourced, and outsourced leave.

Insourced leave management

With an insourced leave administration program, internal leave specialists process leave requests using a technology platform they’ve developed or spreadsheets and manual tools to track leave, send notifications, store documentation, and ensure compliance with relevant leave laws. In this model, leave specialists must keep up to date with all leave laws in the locations where the organization employs team members.

Small companies with an experienced human resources team or with very few leave requests may find managing employee leaves in-house to be a cost-effective solution, but it also carries significant risks.

States and Cities are adopting regulations that complement or expand upon the FMLA. These laws can be confusing and may even appear contradictory, and errors can lead to legal action. Leave requests are becoming more frequent as employees become more knowledgeable about their legal entitlements, which will likely result in more concurrent leaves being processed over time.

For insourced leave management to work effectively, employers must have the following:

  • An HR team with specific experience and knowledge about leave laws
  • Practical leave management tools, including forms, trackers, notification templates, and documented procedures
  • Managers and supervisors who can be heavily involved in the leave process
  • Access to an HR consulting firm or legal counsel with knowledge about leave laws at the federal, state, and local levels

Co-sourced leave management

Co-sourced leave management involves administering leave in-house using a software solution provided by an external vendor. This strategy is a good option for organizations that wish to maintain direct control over leave management but do not have the resources or expertise to support the processes manually.

With a co-sourced solution, the employer uses a sophisticated leave management application to manage the in-house process while gaining the advantages of an automated system. The organization retains program administration responsibilities enabling them to provide a personalized leave experience aligned with company culture. The employer assumes responsibility for durational guidelines and claims management, but the company’s policies and procedures can often be integrated into the software solution.

The external vendor is responsible for keeping the application’s technology up to date and ensuring it aligns with current leave laws, which takes time-consuming labor and research off the hands of the organization’s HR team. While it requires a financial commitment, the impact on efficiency and mitigation of compliance errors make it eminently worthwhile.

Outsourced leave management

Some organizations may choose to outsource leave administration to a third-party vendor altogether. Outsourcing is an excellent option if the employer does not have the in-house expertise to manage leave or if the complexity of applicable or intersecting leave laws and regulations is a concern. Leave administration outsourcing makes sense for small companies that lack expertise or larger firms with adequate financial resources that want to avoid compliance risk.

If you outsource leave management, the vendor will provide all services, including intake, claims management, communication, management oversight, and reporting. The vendor will ensure system compliance and maintain legal updates and internal consistency. The employer will not be involved in potentially awkward medical decision-making and will receive expert guidance from the vendor.

Consider your options carefully

No one solution is suitable for all organizations. With over 400 leave laws at the federal, state, and local levels and more under consideration across the U.S., the best option for your organization will depend on where you are, what you do, and how many people you have doing it. When choosing the most appropriate model for your organization, consider the legal and competency components carefully. Failing to meet required deadlines, provide required communications, or obtain proper documentation can result in legal action, which can be costly and negatively impact employee morale and public image. If you opt for co-sourcing or outsourcing, vet prospective vendors thoroughly to ensure their solution fits your organization.