Cost of Absenteeism

8/4/2019 Cost of Absenteeism

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Employee Absenteeism and cost



Learning Objectives

• Understand the absenteeism

• Learn types and causes of absenteeism and the

associated hidden costs of the absenteeism

• Know why organization has absenteeism problem

• Describe how to measure absence

• Implement an effective HRM practices to reduceabsenteeism

2



What is Absenteeism?

• Any failure to report for or remain at

work as scheduled, regardless of

reason

• According to Webster’s Dictionary,“absenteeism is the practice or habit

of being an ‘absence’ and an3



Types of Absence

• Unplanned incidental absences: absence of five work

days or less, such as casual sick days, where the occurrence

was not known and approved ahead of time by the

employee’s supervisor.

• Planned absences: short or moderate duration absences

such as vacations and holidays

• Extended absences: absences lasting beyond one week,

often unplanned, and generally due to a disability

＊ Absenteeism＝Unplanned incidental absences +

extended absences

4



Types of Absence

(1) Authorized Absenteeism: If an employee absents himself

from work by taking permission from his superior,

(2)Unauthorized Absenteeism: If an employee absents himself

from work without informing or taking permission and

without applying for leave,

(3) Willful Absenteeism: If an employee absents himself from

duty willfully, such absenteeism is called willful absenteeism,

(4) Absenteeism Caused by Circumstances beyond One’s

Control: If an employee absents himself from duty owing to

the circumstances beyond his control like involvement in

accidents.

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Categories of Absenteeism:

K.N. Vaid classifies chronic absentees into five categories viz.,

(1) Entrepreneurs

(2) Status seekers

(3) Epicureans

(4) Family-oriented

(5) The Sick and the Old

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Model of Employee Absenteeism



Personal Characteristics and Absenteeism

1 Education: Mixed: Educ Sickness absenteeism↑ → ↑

2 Education unrelated to non-sickness abs

3 Org tenure: Tenure Absenteeism↑ → ↓

4 Age: Younger more short term; older more long term.

5 Men: Age Absenteeism↑ → ↓

6 Women: No relationship

7 Sex/Family responsibility: Parental status and elder careissues (by 2020 1 in 3 will have the latter)

8 Family Size: Size Absenteeism↑ → ↑

P li



Personality

• ↑ Conscientiousness Absenteeism→ ↓

•

• ↑ Extroversion Absenteeism→ ↑

• ↑ Anxiety/depression Absenteeism→ ↑



Review of Absenteeism Model

Health causes (in UK);1.Cold or flu (93%)

2.Stomach upset and food poisoning

3.Headaches and migraines

4.Back problems5.Stress

Absenteeism in USA;

1.Personal illness (35%)

2.Family related issues (21%)

3.Personal needs (18%)

4.Entitlement Mentality (14%)

5.Stress (12%)



Cost of Absenteeism

• MERSER (2008) Survey found that theaverage yearly direct and indirect costs formajor absences add up to about 36% of base payroll (World at work, 2008)

• Total costs of incidental unplanned

absences are 6% of payroll (3 times fromtheir direct cost)

• The total costs for planned absencesaverage 26.6% of base payroll ( 2.8 timesfrom their direct average costs of 9.6% of pay)

• Across all companies, $20.18 billion was

paid out to staff who were absent and to



Cost of Absenteeism

• Unscheduled absence cost;

• small business $62,636/year in1993.

• an average $755 per employee peryear

• lose an average of 2.8 million workdays each year

• Cost in USA more than $74 billion



Absenteeism cost

Absences have three areas of financial impact:

Direct costs for the benefits or wages paid to employees

while absent,

Indirect costs for lost productivity or the replacement

worker expenses to “cover”absences and minimize loss of

productivity, and

Administrative expenses, whether due to internal staffing

and overhead, or to vendor services.

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Replacement Workers Efficient

Replacement workers are less efficient:• 71% as efficient during unplanned incidental absences

• 79% as efficient during planned absences

• 80% as efficient during extended absences

• The work output of 4 to 8 co-workers was reduced by 19%

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Absenteeism Rate

Number of worker-days lost through jobabsence during period

= ---------------------------------------------------- X100

Average number of employees xNumber of work days

Example: Compute absenteeism rate if 300 worker-days are loss through jobabsence during a month having 25scheduled working dates at anorganization that employs 500 workers.



How Absenteeism Create Cost

Administrative Administrative Financial FinancialProductivityProductivity



• Lost productivity of the absent employee

• Time lost in the sourcing and training of new or

replacement staff

• Overtime for other employees to fill in

• Decreased overall productivity of those employees

• Morale and motivation issues can greatly decrease the

productivity of staff

• Negative impact on team work

• Unplanned absence caused a 54% decrease in

productivity/output (Mercer/Marsh survey)

Decrease in Productivity



• Increased supervisory and administrative

costs in the monitoring and management

of absenteeism program

• Increased costs associated with securing

replacement staff

Administrative Costs



• Salary costs for new or replacement staff

• Overtime payments

• Medical and insurance costs may increase

• Possible loss of business or dissatisfied

customers ( 39% drop in sales and

customer service)

• Problem with employee moral

Financial Costs



Collecting right data

• Compute total employee hours lost to absenteeism for the

period• Compute weighted average wage or salary/hour/absent

employee

• Compute cost of employee benefits/hour/employee

• Compute absent workers paid benefits

• Compute total compensation lost to absent employees

• Estimate total supervisory hours lost to employeeabsenteeism

• Compare average hourly supervisory salary + benefits

• Estimate total supervisory lost to managing absenteeismproblem

• Compute the cost of substitute employees

• Estimate the costs of reduced quality or quantity of workoutputs

• Estimate total costs of absenteeism•



Total Hours Lost of Absence

• Example; In P Electric’s, total working hours arebased on general working conditions such as 40

hours/week and 52 weeks /year. Howeveremployees received paid 2 weeks vacation timeand 5 working days as holidays. Total employeeNo. is 3,000.

1) Compute total working hours and2) Total scheduled work hours lost annually by

considering absence rate is 1.75% of scheduledwork time

• Annual hours of scheduled work = 2,080-80-40=1,960

• Therefore total scheduled work time = 3000 X

1960 = 5,880,000• =



Compensation for Absent Employees’ Time

• Example; assume that 60% out of theaverage percent of total absenteeismbelongs to blue collar, 30% clerical and10% management and professional

employees and average hourly wage is$23.80, $17.80 and $38.50 respectively.Compute the average hourly wage rateper absentee.

• Blue collar 0.60 23.8014.28

• Clerical 0.30 17.20

5.16•

B fit f Ab t E l



Benefits for Absent Employees

• Compute P Electric’s average annualsalary per employee by assuming that theaverage annual salary per employee is$23.29.

• Average annual salary per employee

= $23.29 X2,080Hrs

= $48,443.20//

Compute average cost of benefits peremployee per year in considering that thedirect benefits of the employee is 40% of total compensation.

Average cost of benefits per employee per



Employees

• Compute the total compensation lost perhour per absent employee.

Cost of benefits per hour employee

= 19,377.28/52X40

= $9.32

= $23.29 + $9.32

The cost of employee benefits per hour per

employee = $32.61 Total compensation cost for all employees

= 102,900 X

$32.61=

Some facts about



• Most employees miss work because of personal illness or illness

involving a member of the family.

• Employees also miss work because of stress.

• The primary factor affecting an employee’s stress level is his/her

perception of the relationship with his/her supervisor or manager.

• Authoritarian management styles promote the highest rates of

employee burnout and absenteeism.

• Absenteeism is costly to a company’s bottom-line.

Some facts aboutAbsenteeism



The characteristics of an authoritarian manager:

• Poor listening skills and communication skills

• Tendency to set unreachable goals

• Personal inflexibility

• Tendency to blame others for problems

• Insist that things must always be done their way

• Tendency to micro-manage and be task-driven

• Sometimes yell, scream, and curse at employees

• Would you want to work with someone like that?

Authoritarian managers



Work conditions:

• The relational climate of a job can affect employees’ willingness to

show up to work.

• Negative relationships between employees and their supervisors

can result in absenteeism.

• Sometimes employees miss work because of unresolved conflict

between each other.

• Interventions to reduce interpersonal work stress can help deter

employee absenteeism and burnout

More Factors Affecting Absenteeism



Burnout has been identified as one of the principal causes of bothabsenteeism and excessiveturnover.

Let’s therefore look at some of thepsychological aspects of burnout.

Burnout & Absenteeism



Stages of Career Burnout:

Enthusiasm

Stagnation

Frustration

Apathy

Intervention/No Intervention

Burnout

Where do you place yourself in this hierarchy?

From “enthusiastic” to “burnt-out”



Lack of incentives:

• While many companies punish employees for missing work, few

think of rewarding those that show up faithfully.

Examples of incentives that work:

• Being able to cash it unused sick days

• Bonuses for perfect attendance

• Certificates of achievement




• No attendance policy:

• Many companies do not have an explicit policy requiring employees to

honor their commitment to the job.

• An attendance policy allows a manager to intervene in cases where an

employee is frequently absent.

• An official policy allows managers to identify and refer to the EAP

employees that may have other problems e.g., alcoholism, domestic

problems, etc.




• Using an absence tracking tool

• Change management style

• Identify authoritarian managers

• Provide appropriate management training

• Change working conditions:

• Adopt policies and values that promote employee respect and professionalism

• Develop and promote an internal conflict resolution procedure

• Take employee complaints seriously – sometimes listening is enough.

• Work to create a “just” working climate.

Combating Absenteeism



Excessive Absenteeism

• What is excessive? Multiple metrics:

• Number of sick days used

• - Dept of Labor: Mean is 7 days

• Changes in absence rates (paid unscheduled absence hours/paidproductive hours)

• Lower in bad economic times, higher in good times

• 2.3% in 2005, 2.5% in 2006, 2.3% in 2007



ABSENTEEISM COSTS(lower level employee, 2007)

1. Salary 99.70

2. Benefits 28.12

3. Replacement employee 10.23

(cross-training, temp help, supervision, overtime)

4. Unabsorbed burden (unused capital 67.75

equipment, rent, light, in-efficient use of materials)

5. Loss profit contribution (value added) 81.81

Total $287.61



Focus: Managing VoluntaryAbsenteeism

• Determining what percent of absence is voluntary

(avoidable) and what is non-voluntary is tricky

• Experts believe 40% is voluntary and 60% is non-voluntary

• 40% may be the “max” managers can affect (a restriction

in range)



Absenteeism Measures

1. Frequency Measure: Total number of times in which the leave was availed

/Total number of mandays scheduled to work （ The

frequency rate represents the average number of absences per worker in a

given period）

2. Severity Measure: total # of days absent during a period /total # of times

absent during that period

3. Attitudinal Measure: Frequency of 1 day absences

4. Medical Measure: Frequency of > 3 day absences

5. Blue Monday: # people absent on any given day (e.g., Monday)

6. Worst Day: derived from #5 to indicate which

day of the week is worst.



RECOMMENDATIONS FOR INCREASEDUNDERSTANDING OF ABSENTEEISM

1. Use standardized measures and time frames

2. Study attendance

3. Study white collar absenteeism

4. Examine how other HR practices affect absenteeis (next2 slides)

5. Encourage health

6. Engage in more creative thought

Eff t f V i H R P ti R d i



Effects of Various Human Resource Practices on ReducingAbsenteeism

• Method # of Studies Effect

Effects of Various Human Resource Practices



Effects of Various Human Resource Practiceson Reducing Absenteeism: HR Professionals

• Well Pay (Buy back unused sick leave) 533.4

• Verification of illness 74 3.2

• No-fault 59 2.9

• Disciplinary action 89 3.4

• Personal recognition 57 2.6

• Part of yearly performance review 82

2.9• Bonus 51 3.3

• Paid-leave banks (PTO) * 60 3.6

• Adapted from CCH,

www,cch.coom/preess/news/2007



1. Increase job satisfaction/autonomy viaa. Job redesign c. Decreased stressb. Supervision d. Flexible schedules

2. Use motivation strategies more frequently and

creativelya. Operant conditioningb. Goal setting

3. Use work group dynamicsa. Small groupsb. Promote attendance norm; tie to rewards?

4. Consider time lags of interventions (next slide)

PRACTICAL STRATEGIES FORREDUCING ABSENTEEISM



Strategies for Affecting Absenteeism over Time*(Length of Time to Impact)

Short-term: < 3 m onths

M id-term: 3 m onths- 1 year

Long-term: > 1 year

Attendance incentives

Injuries/illnesses

Low stress/injustice

Social pressure to attend w

Job satisf action

Organizational com mitme

Job involvement

M eaningful work Group/culture with strong

attendance norm

Non-union or no paid sick

leave environment

Day shift

Flextime

Gender

Age

Depression

SmokingHeavy drinking

Drug use

Exercise

Documents

Cost of Absenteeism