How Much is Employee Absence Costing You?
December 15, 2010 § Leave a Comment
Every year, you are going to deal with unplanned employee absences. It is just part of doing business and it isn’t necessarily a bad thing. However, with every unplanned absence you should have an idea of what it is costing you and your company. According to a 2010 Kronos/Mercer survey, the full costs of employee absences can be very significant amounting to 36% of payroll in their survey.
Unplanned absences have three areas of cost: direct costs, indirect costs, and administrative expenses. Direct costs are vacation, sick and personal leave and/or benefits that is paid to an employee. The indirect costs are the intangible costs that are harder to calculate. Indirect costs include work not being done, co-workers having to take care of work, and a slow/stop in production. Administrative expenses are “additional costs that an employer bears for internal staff, software, office space and equipment- or for an outside organization- to administer absence benefits.” Most managers know that absences do affect an organization’s customer service, staffing and fulfillment of production and other business objectives.
Quantifying the cost of indirect absence costs has been a tremendous challenge over the years. In their 2010 Survey, Kronos placed indirect costs into one of two categories: replacement labor expenses and net lost productivity value. Replacement labor expenses are “the costs for employers to have other individuals do the work that an absent employee is unable to do.” Net lost productivity value is “a soft-dollar measure of potential lost revenue to the extent that the work is not fully “covered” by replacement labor.”
Key findings of the Kronos survey concluded that the total costs of absences amount to 36% of base payroll while the average total cost of incidental unplanned absences amount to 6% of payroll and those for extended absences average 3.2% of payroll. Planned absences amounted to 26.6% of base payroll while incidental unplanned absences resulted in the highest net loss of productivity per year. Finally, the number of incidental unplanned absence days per employee per year averaged 5.3 days across all employee classes. Ultimately, the hard cost of absences is minor (roughly 2%) but creating a plan for when employees are gone will mitigate the soft costs.