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The True Cost of Employee Absence

How to Calculate True Cost (And More Importantly, How to Avoid it?)

· leave management,pto tracking

What’s the true cost of employee absence?

Check out U.S. corporations, British, Canadian, and Japanese businesses, and you’ll find they all report high costs in employee absenteeism. The reasons vary only slightly, and they provide no ranking.

Ranking may be tough because reasons overlap and inter-relate. But, the direct and indirect costs are sizeable, immediate and difficult to solve.

Why do they miss work?

We might call basic reasons for absence “legitimate.” They are normal, expected, and reasonable. Employees miss work for mundane reasons like illness and injury. People get sick, keep doctor’s appointments, and treat colds and flus. They also get hurt in trips, falls, and vehicle accidents outside work. The Bureau of Labor Statistics (2015), claimed, “About 3.5 million workers missed work in January 2015 because they had an illness, injury, or medical problem or appointment.”

Bereavement causes some people more pain than others. Most companies have reasonable to generous bereavement policies, but some employees lose time for related depression, emotional problems, and physical issues.

Natural disasters - hurricanes, earthquakes, and tornadoes – will interfere with employees’ ability to reach work, and companies should have practices in place to handle such events.

 

Other causes are less legitimate in the sense that they might be managed, prevented, and disciplined. It’s not that they are false, but they can lead to subjective assessments that complicate best practices.

  • Employees claim stress when they are really talking about burnout and low morale. This may result from heavy workloads, performance deadlines, or inflexible hours.
  • Childcare or eldercare drains employee emotional and financial resources. There are those understandable lost days to do snow days, but some employees treat the company policy as an entitlement.
  • Substance abuse leads to absenteeism and may be related to issues inside or outside work.
  • Change incurred after acquisition and merger disorients workers with new stresses that many cannot manage.
  • Poor leadership shows in employee disengagement which, in turns, prompts stress-related absenteeism and time lost to their job searching.
  • Bullying and harassment have become a leading cause of absenteeism. They are very difficult to define and increasingly complex.

What are the direct costs of employee absence?

Even though more employees report working while they are sick, The Centers for Disease Control and Prevention (CDC) (2015) reports, “productivity losses linked to absenteeism cost employers $225.8 billion annually in the United States, or $1,685 per employee.”

The direct costs include:

  • Wages associated with time off more than PTO budgeted
  • Cost of replacement workers
  • Overtime for employees covering for absent workers
  • Administrative costs of managing the problem

The indirect costs count:

  • Lost productivity
  • Management time spent on managing related issues
  • Reduced quality performance by under-trained replacement workers
  • Increased employee turnover
  • Lowered employee morale as remaining staff feel overworked
  • Increased safety risk on part of temporary workers

How to calculate the true cost of employee absence?

Calculations vary from one business to another. Each has different demands, policies, and practices. But, if you start with an integrated HCM system like BizMerlin’s, you have a time-off reporting system that pushes some of the accountability to the employee to track PTO and submit time-off plans for approvals. It creates one important tool for forecasting, budgeting, and labor resource allocation.

If you assume that employee benefits run 20 percent of salary, you can calculate the cost of absenteeism:

  1. Total work hours/month lost to employee absenteeism:       ______
  2. Average pay/hour per employee:                                     ______
  3. Cost of employee benefits = Line 2 X .30:                                    ______
  4. Total pay lost/hour per absent worker:                          ______
  • Absences paid = Line 1 + Line 2:                                             ______
  • Absences not paid = Line 3:                                         ______
  1. Total compensation lost to absent workers

= Line 1 X Line 4a or Line 4b:______

  1. Other absentee-related costs like premium paid, overtime,

Temp workers, redone work, lost production, etc.)______

  1. Total cost of absenteeism for the month

= Line 5 + Line 6:______

A simpler approach might be to calculate the employee’s salary + 30% employer costs divided by 240 working days (in a calendar year).

Is there more to this?

Today’s analytics can break this cost down more definitively. For example, the CDC has reported how employees with certain habits and physical conditions track. Of the 229,615 individuals studied, 27.4% were smokers, 55.9% were physically inactive, 26.0% were obese, 18.0% suffered from hypertension, and 4.8% reported diabetes.

The numbers also showed that workers with one of these conditions would miss 2 to 2.3 excess workdays each year. People with two or three of these problems would miss 3.7 to 4.5 workdays. And, those with four or five of these health issues would miss 4.4 to 8.6 days. For example, the dollar impact for absenteeism associated with obesity reaches $11.2 billion. For diabetes problems, it may even exceed that.

This justifies the corporate expense in supporting wellness programs. But, if leadership understands the true cost of employee absence, it must take more aggressive steps to manage, reduce, and prevent the costs. In addition to wellness programs, businesses are advised to:

  • Create and implement a clear formal policy on absenteeism. You must communicate and consistently enforce a practice that defines tardiness and absenteeism. Employees need to know time off is paid and what is not. Everyone should know how PTO is earned and accrued. And, they should know about holidays, vacation time, sick time, and leaves of absence.
  • Leadership and employees must introduce a versatile attendance tracking system. A tracking system with access for employee and managers will the data necessary for the employee to confirm time used and time available to reduce their ignorance and manage their compliance. But, it also gives managers the information to schedule, distribute, and budget human capital.
  • Provide professional counseling and risk management resources. Instead of fighting and resisting employee pain and suffering, it benefits the manager and employee to keep them on the job.
  • Work with risk managers and insurance companies to identify and correct ergonomic and other material and mechanical risks to employee health and performance.
  • Push attendance management down. Every manager and supervisor have a daily duty to monitor attendance, report tracking, and discipline abuse. Attendance is not merely reporting for work. A metric that only counts the hours is insufficient. Attendance management requires accountable managers to coach, mentor, and counsel employees on importance of attendance to larger corporate goals.

If employees abuse attendance policies, you must correct their problem behavior or terminate them. If their attendance problems result from lack of clear policy, you must implement one. If their attendance relates to workplace injuries, you must comply with applicable laws and still support their recovery and return to work. If your insurance clams and loss ratios indicate concerns in wellness, your business will benefit from wellness programs focused on those conditions.

The true cost of employee absence is significant enough that you must commit to the cost of prevention, control, and remediation.

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