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Understanding the True Financial Impact of Absenteeism

Understanding the True Financial Impact of Absenteeism

Tom Wojtkun

11/21/2016


By Thom Wojtkun


National Account Director, Commercial Real Estate

It is difficult for even the most buttoned-up organizations to understand the financial impact of absences caused by employee illness. Healthcare claims and their affiliated costs may be more readily financially trackable, but absences also have far-reaching effects on productivity and operating expenses that are not as easy to quantify and control.

This article examines the true financial impact of unplanned absences caused by illness—and how to reduce both absenteeism and healthcare claims.

Why Quantifying the Financial Impact of Absenteeism Is Hard

Aon Hewitt’s 2014 Health Care Survey1 found that less than 40% of employers measure the bottom-line financial impact of employee absences, while a 2011 Liberty Mutual survey found that nearly 50% of employers aren’t even able to estimate the total cost associated with absenteeism.2

According to the Society for Human Resource Management (SHRM), more than 40% of organizations provide a paid time off (PTO) plan that combines vacation time, sick leave and personal days.3 This limits employers’ visibility into the causes of employee absences, which includes a variety of reasons not related to illness. In fact, SHRM found only 24% of HR executives believe their organization tracks employee absences very accurately.4

Despite this lack of visibility, absences caused by employee illness have a material impact on the bottom line.

Direct and Indirect Costs of Absenteeism

U.S. employers collectively lose an estimated $260 billion annually as a result of poor employee health.5 As much as $100 billion in annual losses are tied specifically to absenteeism, according to a Liberty Mutual review of data from the U.S. Bureau of Labor Statistics.6

In a 2011 Liberty Mutual survey, 36% of respondents estimated that absenteeism costs their organization at least $100,000 annually. Mercer has found that absenteeism costs can reach 35% of an employer’s payroll.7

Hourly and Salaried Employees

Circadian has calculated that unscheduled absences cost U.S. employers at least $3,600 per year for each hourly employee - and at least $2,650 for each salaried employee.8

In blue-collar environments where most workers are paid hourly, payroll costs increase when employees use PTO because they often need to be replaced on the job, either by contractors or temporary employees, or through reallocation of the existing workforce. Consider this example:

If an employee receives an hourly wage of $19 with an average absence rate of 9% of scheduled time, at least half of these absences are counted as PTO. Since absent employees must be covered by replacement workers, each full-time employee creates more than $3,500 in absenteeism-related costs annually. For a company of 5,000 employees this equates to almost $18 million per year.

For salaried workers, the situation is different. Salaried employees are rarely replaced when absent, so the direct payroll costs are limited to the hours lost while an employee is on PTO. However, these absences can impact a company’s ability to meet customer demands and generate revenue.

Productivity, Operating Expenses and Profitability

An ADP survey9 of decision makers in midsized and large companies found that absenteeism has:

  • Reduced productivity at 50% of midsized and 54% of large companies
  • Reduced profitability at 30% of midsized 36% of large companies
  • Increased operational costs at more than 28% of midsized and large companies

According to SHRM, employees who are covering for an absent co-worker are nearly 30% less productive - and supervisors are 15% less productive.10 Additional negative effects of absences reported to SHRM include:

  • Increased workload and stress for co-workers and supervisors
  • Reduced morale and quality of work
  • Need for overtime or training

SHRM found that 83% of organizations have employees work overtime as a result of absences. Excess overtime can lead to fatigue, higher turnover and safety issues - all of which can be costly for a business.

Circadian found that idle time is 4.1% in facilities with low or average absenteeism, and 7.7% in facilities with high absenteeism. If a company with 5,000 employees reduces idle time by half of the difference, approximately $14 million could be added to total revenue as a result of increased productivity.

How Companies Can Keep Employees Healthier and More Productive

Employers have turned to wellness initiatives as a means of keeping employees healthy and productive. Total spending on wellness initiatives exceeds $6 billion annually in the U.S. - but many programs are expensive and difficult or time-consuming to maintain.11

The PURELL™ Advanced Workforce Solution is cost-effective, easy-to-implement, and proven to reduce absenteeism. A recent study at a Fortune 1000 healthcare insurer’s facility found that making PURELL® Advanced Hand Sanitizer and PURELL® Hand Sanitizing Wipes available throughout the company’s work areas reduced absenteeism by 13.4% - and reduced employee healthcare claims for hand hygiene preventable illnesses by over 24%.12

By reducing healthcare claims, associated costs and productivity losses due to absenteeism, this comprehensive hand hygiene program effectively helps organizations mitigate the financial impact of employee illness. Only the PURELL™ Advanced Workforce Solution has been scientifically proven to reduce absenteeism and healthcare claims in a study of this kind.

 

Learn more about the PURELL ADVANCED WORKFORCE SOLUTION™ for commercial offices can help keep your employees healthy and productive.


1. Aon Hewitt. Health Care Survey. http://www.aon.com/attachments/human-capital-consulting/2014-Aon-Health-Care-Survey.pdf
2. Liberty Mutual. The Missing Piece of Absence Management—Turning Data into Dollars. 2011.
3. Society for Human Resource Management (SHRM). Examining Paid Leave in the Workplace. 2008. https://www.shrm.org/Research/SurveyFindings/Articles/Documents/09-0228_Paid_Leave_SR_FNL.pdf
4. SHRM, Kronos. Total Financial Impact of Employee Absences in the U.S. 2010.
5. Davis K, Collins SR, Doty MM, Ho A, Holmgren AL. Health and productivity among US workers. Issue Brief. (Commonwealth Fund). 2005; 856:1-10.
6. Calculated from U.S. Bureau of Labor Statistics tables: Full Time U.S. Private Sector Employee Population
(Table 47: http://www.bls.gov/cps/cpsa2009.pdf); Employer Costs for Employee Compensation
(http://www.bls.gov/news.release/pdf/ecec.pdf); Avg. Time Lost Due to Illness/Injury
7. Liberty Mutual. The Missing Piece of Absence Management—Turning Data into Dollars. 2011.
8. Circadian. Absenteeism: The Bottom-Line Killer. 2005.
9. ADP Research Institute. ADP HR/Benefits Study on Total Absence Management. 2012. http://www.adp.com/media/press-releases/2012-press-releases/adp-survey-reveals-us-employers-not-taking-steps-to-control-absenteeism.aspx
10. SHRM, Kronos. Total Financial Impact of Employee Absences in the U.S. 2010.
11. Gallup Business Journal, “Most Company Wellness Programs Are a Bust.” http://www.gallup.com/businessjournal/181481/company-wellness-programs-bust.aspx
12. Arbogast, JW., L. Moore-Schiltz, W. Jarvis, A. Harpster-Hagen, J. Hughes, A. Parker. 2016. “Impact of a Comprehensive Workplace Hand Hygiene Program on Employer Healthcare Insurance Claims plus Costs, Absenteeism, and Employee Perceptions and Practices.” Journal of Occupational and Environmental Medicine.

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