Survey: Tracking, Managing Costs of Absences Can Improve Bottom Line

By Sep 16, 2014
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The average direct cost of paid time off offered to full-time employees in 2013 was equivalent to 15.4 percent of an organization’s payroll, a number that rises to between nearly 21 percent and 22 percent when indirect costs are accounted for, according to a survey from the Society for Human Resource Management (SHRM) and Kronos Inc., a provider of workforce management solutions.

The findings from the Total Financial Impact of Employee Absences in the U.S. survey point to the importance of accurately tracking and managing costs associated with employee absences in order to better monitor, plan and budget for them, SHRM and Kronos Inc. said in an executive summary of the survey.

The goal of the study was to measure direct and indirect costs of employee absences, including those associated with overtime, replacement workers, payroll and productivity loss. SHRM conducted the survey in April and May 2014 in collaboration with Kronos, which commissioned the study.

The survey assessed the total number of paid days off that were offered to full-time employees, and the total number of workdays, in one calendar year. Absences were defined as vacation and personal time off, sick time off, and other paid time off (PTO), used for such reasons as bereavement, parental and civic needs.

The total of 15.4 percent of direct costs as a percentage of the payroll, the survey found, came from:

  • Overtime costs: 5.7 percent.
  • Cost of replacement workers, such as temporary employees: 1.6 percent.
  • All paid time, including salaries and wages: 8.1 percent. Here, PTO can refer to a bank of time that an organization offers to their employees, or an overall description of the different types of paid time off.

On average, co-workers were almost 30 percent less productive when providing coverage for another employee on a typical day of absence. Unplanned absences impact co-workers in a variety of ways, the survey found, by:

  • Adding to workload (cited by 69 percent of respondents).
  • Increasing stress (61 percent).
  • Disrupting the work of others (59 percent).
  • Hurting morale (48 percent).
  • Reducing quality of work (40 percent).
  • Adding mandatory overtime (29 percent).
  • Requiring additional training (20 percent).
  • ​Penalizing or reflecting badly on a group or team (19 percent).

Supervisors were nearly 16 percent less productive when dealing with employee absences, which included tasks such as finding replacement workers, adjusting work flow and providing training. In fact, they spent slightly more than four hours per week—the equivalent of 5.3 weeks per year per supervisor, for companies that are open 50 weeks per year—dealing with absences.

Two-thirds of respondents said employees use a request form or send an e-mail to ask for time off. More than half (56 percent) think their organization is reasonably accurate in tracking the financial liabilities for paid time off, such as vacation or sick day accruals; one-quarter (24%) think their organization very accurately tracks this type of financial liability.

Among respondents who reported their organization has a formal system for tracking planned and unplanned employee absences, an integrated system as a component or module of an HR information system was the most common method used (35 percent). Less than one-fourth said supervisors use a centralized system to track disability/extended leave-related absences, and only one-tenth said supervisors do this for leave associated with the Family and Medical Leave Act (FMLA).

According to the survey, disability/extended medical leave and FMLA leave were most commonly tracked in a centralized system by HR; about one-fifth of HR professionals said they did this manually.

The majority of respondents said their organization had a formal attendance policy in place. A formal policy, the report pointed out, “serves as a guideline for supervisors and helps ensure consistent practices across an organization.”

Additionally, the report suggested that the lack of such a policy could put an organization at risk if practices among managers differ in how they handle employee absences.

“A clearly defined strategy to monitor and manage absence, with proper training and automation,” SHRM/Kronos said in the report, “can help control costs associated with absences and improve the bottom line.”

The findings are based on responses from 733 SHRM members, Kronos customers and potential Kronos customers holding the title of director or above at organizations in the U.S. with 500 or more employees.

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