Understanding the True Financial Impact of Absenteeism

It is difficult for most 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 blog 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 Survey 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.¹

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. 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.² 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.³ 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.⁴ 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.⁵

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.⁶

• 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. 
• 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 survey 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. 

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. 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%.⁷

By reducing healthcare claims, associated costs and productivity losses due to absenteeism, a comprehensive hand hygiene program effectively helps organizations mitigate the financial impact of employee illness.

Understanding what a healthy environment at work is can help you. Miller's can help establish impactful wellness initiatives to help keep your office healthy and productive. We offer site surveys to help provide solutions to the challenges of keeping a healthy office environment. Learn about four site survey options we can visit your workplace and perform.

This content was originally published by GOJO here. We have republished this content with their permission.

1. Liberty Mutual. The Missing Piece of Absence Management—Turning Data into Dollars. 2011.
2. SHRM, Kronos. Total Financial Impact of Employee Absences in the U.S. 2010.
3. Davis K, Collins SR, Doty MM, Ho A, Holmgren AL. Health and productivity among US workers. Issue Brief. (Commonwealth Fund). 2005; 856:1-10.
4. 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

5. Liberty Mutual. The Missing Piece of Absence Management—Turning Data into Dollars. 2011.
6. Circadian. Absenteeism: The Bottom-Line Killer. 2005.
7. 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.