How much does absenteeism cost employers?
Posted by Robin on 31 Mar, 2021 in Guides
Absenteeism is any absence from work when the employee should have been in work. This broad definition of absenteeism, as set out in Investing in People, means that to answer a question of cost, we must first narrow down the definition of absenteeism.
Authorised absenteeism, by its definition, is absenteeism that the company or organisation has accepted as a cost of doing business or a cost that it must bear in accordance with local law or as agreed in a collective bargaining arrangement. Such authorised absences may include paid annual leave, parental leave or jury duty. When discussing the cost of absenteeism, most businesses are referring to the cost of unauthorised or unplanned absence such as sick leave.
Everyone takes sick leave though so there must be something more? Generally, absenteeism is a chronic or habitual absence from the workplace. That is, there is a regularity or pattern to the employee's absence. The reasons for this can be varied and may not always be related to the workplace. This is discussed more below.
Authorised absenteeism, by its definition, is absenteeism that the company or organisation has accepted as a cost of doing business or a cost that it must bear in accordance with local law or as agreed in a collective bargaining arrangement. Such authorised absences may include paid annual leave, parental leave or jury duty. When discussing the cost of absenteeism, most businesses are referring to the cost of unauthorised or unplanned absence such as sick leave.
Everyone takes sick leave though so there must be something more? Generally, absenteeism is a chronic or habitual absence from the workplace. That is, there is a regularity or pattern to the employee's absence. The reasons for this can be varied and may not always be related to the workplace. This is discussed more below.
How can I measure absenteeism?
The classic measure of absenteeism is to ask for what percent of total working time available has the employee been absent.
Assuming that there are 260 working days per year and 20 of those are authorised holiday and 10 days are authorised parental leave, that would leave 230 available working days. If the employee is absent for an additional 12 unplanned or unauthorised days, the absenteeism rate would be calculated as:
Assuming that there are 260 working days per year and 20 of those are authorised holiday and 10 days are authorised parental leave, that would leave 230 available working days. If the employee is absent for an additional 12 unplanned or unauthorised days, the absenteeism rate would be calculated as:
(12 / 230) * 100 = 5.2%
Operating this calculation only gives you a number though. Understanding whether it is "good" or "bad" is something that needs to be determined for your own organisation. It may be that an absenteeism rate of 5.2% is in the lowest quartile for your employee population. This data should be used in conjunction with other data points to form a rounded view of the issue.
In addition to this basic calculation, it is also possible to use the Bradford Formula or Bradford Factor calculation. The purpose of the Bradford Factor is to place an emphasis on the number of absences rather than the total number of days on which the employee is absent. It works on the principle that the absence of an employee for one long period is less disruptive than their absence for a number of short periods.
When considered objectively this makes sense. If an employee is on sick leave for two weeks, it is much easier to reallocate their work and cover the absence than if they are in one day, off the next, and then back in. It is the frequency and abruptness of the absences that causes problems for the employer.
The formula for the Bradford Factor emphasises frequency by applying an exponential factor to the number of absences. The Bradford Factor formula is:
BF = TD * P * P
In the formula, TD is the total days absent in a period and P is the number of periods of absence. Putting some numbers into the formula, if an employee is absent for six days in total across two periods, their Bradford Factor would be:
6 * 2 * 2 = 24
Contrast that with an employee who is absent again for six days in total but spread across four periods:
6 * 4 * 4 = 96
It is common to measure Bradford Factor across a rolling 12 months and generally speaking a good baseline is a score no higher than 40 but again this is only one trailing indicator and it should be mapped to other data points on the employee.
What causes absenteeism?
As noted above, mathematical calculations are but one data point on issues of absenteeism and need to be taken in the broader context of the employee's work. Whilst it is true that some employees will push the boundaries of what is permissible, most employees want to come to work, do a good job and be paid for it. So, where the data indicates an issue with absenteeism, it is critical to understand the why.
There are myriad reasons why understanding the why is important. At the most basic level, your organisation may be exposed to litigation from employees if their employment is terminated solely in response to the data points. At a higher level, how you manage these issues will significantly impact your employer brand. Even if the employee needs to be dealt with formally, doing so in a professional and respectful manner will not damage your employer brand. Furthermore, being compassionate and empathetic will enhance that brand.
As an example, the following matters could factor in to the reasons for the absenteeism:
There are myriad reasons why understanding the why is important. At the most basic level, your organisation may be exposed to litigation from employees if their employment is terminated solely in response to the data points. At a higher level, how you manage these issues will significantly impact your employer brand. Even if the employee needs to be dealt with formally, doing so in a professional and respectful manner will not damage your employer brand. Furthermore, being compassionate and empathetic will enhance that brand.
As an example, the following matters could factor in to the reasons for the absenteeism:
- Is the employee undergoing personal issues that might be affecting their wellbeing? Even before COVID-19, it was common for events outside the workplace to impact employee absence and fostering a culture where employees feel open to discuss these matters with either their manager or a confidante may stop issues arising.
- Is the employee facing issues around progress or development in the organisation? In their last performance review did they indicate areas of development that might not be being met? These aren't acceptable justifications for unauthorised absence but they may help identify the why and help plan a way to get the employee re-engaged with the organisation.
- What is the environment in the workplace? Is there an issue with employee morale and might this be contributing to the absence?
In all these cases, the answers may help devise a strategy for dealing with an employee who is chronically absent but without addressing the underlying issues the problems may persist.
What is the cost of absenteeism to my business?
When asking this question, it's critical to not just consider cost in the financial context (although almost all consequences will have a direct or indirect financial cost) but rather more broadly as the impact to your business.
Habitual absenteeism does of course have a direct cost if you need to reinforce your teams with temporary support. The direct cost is correlated to the demand for the type of employee that is absent. Consider though that even a relatively junior employee can have a high cost of temporary cover when you factor in employer-related costs such as pension and national insurance and the profit margin of the company supplying temporary cover.
For a worker with a pay rate of £15 per hour, the employer costs will add an additional £4.50 and the profit margin potentially another £3.50. On an 8 hour day, your organisation will be paying nearly £1000 per week for the cover, in addition to the ongoing payments to the absent employee.
The indirect costs can be greater though.
Firstly, management time is spent dealing with the issue. Any organisation wants its top people dealing with issues affecting the organisation's customers, products or services. They don't want them dealing with chronically absent employees. Depending on how cover is arranged, time is spent organising cover, potentially interviewing the temporary workers, authorising timesheets and everything else associated with temporary cover. In addition, temporary IT accounts need to be created, training provided...the list is endless.
Perhaps more importantly is the perception of the colleagues who have to cover the absent employee. If they see that the employee is being given an easy ride then they will become aggrieved. Not only at having to cover the gap but also at the way in which the organisation is dealing with it. Communication with the employees who are still working is critical.
Taking these issues into account, a report by Circadian estimated the total cost of absence for an hourly paid employee to be $3,600 and for a salaried employee to be $2,500. This is outside of the direct cost of replacing or covering their work while they are absent.
Habitual absenteeism does of course have a direct cost if you need to reinforce your teams with temporary support. The direct cost is correlated to the demand for the type of employee that is absent. Consider though that even a relatively junior employee can have a high cost of temporary cover when you factor in employer-related costs such as pension and national insurance and the profit margin of the company supplying temporary cover.
For a worker with a pay rate of £15 per hour, the employer costs will add an additional £4.50 and the profit margin potentially another £3.50. On an 8 hour day, your organisation will be paying nearly £1000 per week for the cover, in addition to the ongoing payments to the absent employee.
The indirect costs can be greater though.
Firstly, management time is spent dealing with the issue. Any organisation wants its top people dealing with issues affecting the organisation's customers, products or services. They don't want them dealing with chronically absent employees. Depending on how cover is arranged, time is spent organising cover, potentially interviewing the temporary workers, authorising timesheets and everything else associated with temporary cover. In addition, temporary IT accounts need to be created, training provided...the list is endless.
Perhaps more importantly is the perception of the colleagues who have to cover the absent employee. If they see that the employee is being given an easy ride then they will become aggrieved. Not only at having to cover the gap but also at the way in which the organisation is dealing with it. Communication with the employees who are still working is critical.
Taking these issues into account, a report by Circadian estimated the total cost of absence for an hourly paid employee to be $3,600 and for a salaried employee to be $2,500. This is outside of the direct cost of replacing or covering their work while they are absent.
How can I pre-empt and manage absence?
Unplanned and chronic absence often has its root cause in something other than the work being done. We note some of these above. Whilst it is not possible to make all employees happy all the time, there are some key things you can do.
- Take your employees' temperature. Not literally - that's a separate article. We mean to check-in regularly, whether in 1-1s or via a company survey. Companies such as Peakon offer an employee-friendly survey that can be used to check your employees' engagement and address concerns before they manifest themselves in absenteeism.
- Flexible work schedules. The pandemic has shown that it's not necessary to be in the office 9-5. Whilst some will argue that the transition to working from home has led to an "always-on" expectation, we would argue that the the blurring of lines between work and play has led to increased flexibility for employees in how they get work done. It is much easier to step away for two hours in the middle of the day when there is not a one-hour commute attached to it.
- Employee confidantes. If you find that employees don't talk to their managers and surveys aren't doing the trick, requesting volunteers to act as employee confidantes may help. It is critical however that the organisation understands the aspects of confidentiality for confidantes.
- Return to work interviews. This ties in with having good, solid processes related to absence. If it's too easy to take unplanned absence and nobody is asking questions about it when returning to work then employees will push the boundaries.
Wrapping up
Absenteeism can have real costs to your business but the reasons for it can be varied and difficult to identify. Here are three key takeaways:
- Create a culture where employees are encouraged to be open and provide feedback whether this is directly through 1-1s, through surveys or via confidantes;
- Put in place a clear policy outlining what is acceptable and what is not, whilst recognising that you will have to deal with individual cases on their own facts;
- Require prompt and accurate recording of all absences so that you can use the data to identify trends or other patterns that might be cause for concern.