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Absenteeism: Measure Costs, Adjust Incentives, Change Behaviors

At Bausch & Lomb Inc., when an employee is off work because of illness or injury, a plan is put in place to mitigate the impact on the team or department, and even on the company as a whole. The objective is to counter the ripple effect on productivity—not just that of the one individual who is absent, but also how the missing employee diminishes the output of others.

The Rochester, N.Y.-based manufacturer of eye care products and optical devices assigns a designated case coordinator, who may be from human resources. The coordinator contacts the employee to address issues related to the absence (whether it is health-related or attributable to another cause), and to deliver the message that the company wants to help that employee come back to work as soon as possible. Employees are informed of their responsibilities during the absence, such as contacting the case coordinator after doctors' appointments with updates on when they are able to return to work.

In addition, case coordinators work with supervisors and managers whose teams and departments are affected by employee absences, coaching them on how to minimize the impact on the group until the employee comes back to work.

“When one employee is not on the job, either someone else does the work—whether another employee or a replacement who is hired—or the work doesn’t get done. On top of that, employee absences create downtime as replacement workers are trained or schedules are readjusted, all of which impacts productivity,” explains Pamela Caggianelli, manager/corporate health for Bausch & Lomb. “The more this occurs in a department, the more it decreases morale and productivity suffers further. If employee absences are not well-managed, a group can go from functional to dysfunctional pretty quickly.”

In Search of Lost Time

Like some other large employers, Bausch & Lomb quantifies and tracks the costs of absenteeism, both the hard-dollar (salary, benefits, replacement workers, etc.) and soft-dollar (including reduced morale, which cuts productivity) costs. Many firms, however, underestimate the problem. They consider such absences to be part of the cost of doing business. With that thinking, companies fail to quantify the full impact of employee absenteeism and to appreciate the value of solutions that can reduce the cost and lost time that result from employees being off work.

“In all honesty, many employers aren’t thinking about this long enough or hard enough,” observes Sean Nicholson, associate professor in the department of policy analysis and management at Cornell University.

“We receive a mixed response from employers on this matter,” adds Kenneth Mitchell, vice president of health and productivity at Unum, which offers individual and group coverage, including return-to-work resources and disability programs. “Employers that take a narrow risk-management approach to workers’ compensation, in particular, tend to deal with lost time very rigidly and in a linear fashion. That is, they define lost time in narrow terms within protected silos.”

Without the means to measure and analyze the cost and impact of employee absence, particularly as related to lost productivity and reduced profitability, companies run the risk of under-investing in health interventions, including wellness, prevention, disease management and other programs. They might not invest in the right programs that meet the needs of their particular employee population, or they might put initiatives in place but fail to communicate them sufficiently to employees so that utilization suffers.

Furthermore, as Mitchell adds, employers need to see that “all lost time is connected,” including workers’ compensation, short-term disability, Family and Medical Leave Act absences and absences that are only a few days in duration. For example, employees who have frequent intermittent absences appear to be three to four times more likely to go out on short-term disability. In addition, Unum’s research suggests, employees out on short-term disability are likely to be larger-than-average consumers of group health benefits.

Measuring the Impact of Absenteeism

To determine how much absenteeism costs the company, employers can measure its impact through several methods, including the following:

Loss in multiples of salary. Understanding the overall impact of employee absenteeism goes beyond the simple math of each worker who is absent equaling one less person who can be productive that day. As Nicholson’s studies have shown, the cost of each person who is absent is multiples of salary (see, for example, “How to Present the Business Case for Healthcare Quality to Employers,” Applied Health Economics and Health Policy, 4(4):209-218, 2005).

When looking at employee absenteeism across a variety of industries, Nicholson found that for many jobs the cost impact is a multiplier somewhere between 1 and 2 applied to the cost of the salary. The mean multiplier across 35 job types was 1.61. The more impact a person has on a team or department, the greater the multiplier.

Loss in full-time equivalent positions. Another measure of absenteeism is to express cumulative lost time in terms of full-time equivalent positions. Rather than look at isolated events, when companies view absenteeism in the aggregate, the result can be startling. Unum's Mitchell says a study for a large bank found that total employee absenteeism for a year equated to 125 full-time equivalent positions. As management was told, the impact of that was as if 15 community bank branches were open for a year, while employees were paid full salary and benefits but were not there—and, by the way, no money or revenue was brought in.

A similar study for a paint manufacturing company equated cumulative yearly lost time to the retail cost of 1.5 million gallons of paint. “We wanted to show the employer that lost time has a broad, connective impact. When you can get that kind of information in front of management, it gives them a clear idea of the cumulative effect across the team and across the whole organization,” Mitchell notes.

Loss in productivity and quality. An ongoing initiative to collect absence data and benchmark results is the Employer Measures of Productivity, Absence and Quality, known as EMPAQ, which was designed and implemented by the National Business Group on Health and its Council on Employee Health and Productivity, in collaboration with numerous sponsors, partners, Fortune 500 employers and their suppliers. EMPAQ allows employers to measure and evaluate the cost-effectiveness or quality in disability management and absence management programs. Companies that participate in EMPAQ can then benchmark their results against other firms.

Establishing Cost Comparisons

When companies have the means to collect and analyze data related to employee absences, HR can establish a cost comparison for productivity initiatives that promote health, wellness and prevention.

“Companies could design health benefits with great pharmacy benefits and hospitalization coverage, and make it a real ‘Cadillac plan’ by bringing in disease management, wellness and all those elements that will affect employees’ health and presumably reduce the frequency of absences,” Nicholson says. But “unless they have a cost comparison, how do they know what return they are getting?”

To make health and wellness initiatives more effective, employers also have to look beyond the benefits programs themselves to the corporate policies and practices that might reinforce or undermine the benefits plans. “The analogy is like the person who buys a fitness tape, sits and watches it for days, but never gets off the couch to do the exercises—and then complains that the strategy doesn’t work,” Mitchell says. “Companies can’t just offer a benefits program; they have to be actively and fully engaged.”

Policies, Practices and Incentives

For example, employers need to examine policies and practices to see if they encourage supervisors and managers to bring employees back to work in a timely and safe manner, or if policies give supervisors and managers incentives to keep employees off the job until they are 100 percent ready to return.

“As we tell employers, they are going to have to change policies and practices and incentives. They have to invest in corporate health and productivity change,” Mitchell says.

At Bausch & Lomb, for example, training for managers and supervisors encompasses a variety of issues, from what to do when someone faints on the job to handling employees who are in and out of work constantly.

“It’s about accountability and recognizing that if we don’t take these steps, the system is not going to work and productivity is going to be lost,” says Bausch & Lomb's Caggianelli, who is a past chair of the Certification of Disability Management Specialists Commission. “When employees are off work, it affects not just their teams and departments, but as time goes on and morale is affected, the entire team’s output is diminished, and then other teams and departments in the company are affected.”

Companies can start by quantifying the cost of absenteeism, which might be greater and have a more pervasive impact than employers have realized. “It’s a matter of translating changes in employee behavior into dollars,” Cornell's Nicholson advises. “What happens when someone is absent? How much less profitable is the company when someone isn’t there?”

Better Health Linked to Fewer Absences,

Improved Bottom Line

For a sizable number of employers, absences are up. According to the Mercer/Marsh Survey on Health, Productivity, and Absence Management Programs 2007, conducted among for-profit and nonprofit employers ranging in size from 100 to more than 10,000 employees:

    • Nearly one-fourth (23 percent) saw the incidence of short-term disability (STD) claims rise between 2005 and 2006.

    • 15 percent saw an increase in the average length of the disability period.

    • Only 11 percent saw a decrease in short-term disability incidence.

Despite their efforts to manage absences more effectively, for two-thirds their absence rates remained unchanged. Nearly two-fifths (38 percent) report increased use of leave under the Family and Medical Leave Act (FMLA).

"It comes down to maintaining productivity as well as managing health care cost," says Sue Willette, head of Mercer’s health and productivity management group. "It's clear that if your employees are not at work—or are at work but not 100 percent healthy—productivity suffers."

Mounting Costs

Substantial financial opportunities can be gained through a healthier workforce. Health benefit cost is equivalent to about 16 percent of payroll, while the cost of absence programs—incidental absence, STD, long-term disability (LTD) and workers' compensation—together equals 4 percent of payroll.

On top of these direct costs are the hidden cost of absence—the cost of replacement labor and loss of productivity, estimated to equal about 3 percent of annual payroll. And in some industries, the impact of absences on productivity can be much greater.

"Altogether, employers are looking at cost of nearly a quarter of payroll for health and absence programs and health-related productivity losses. These costs are related, but until recently employers have managed them separately," Willette said.

Robert Hall, Ph.D., CDMS, CRC, is a commissioner of the Certification of Disability Management Specialists Commission, a nationally accredited organization that certifies disability managers. He is principal of Presagia Inc., which develops health management information software applications for the Technologies Center at San Diego State University, where he is an adjunct professor in the graduate Rehabilitation Counseling Program.


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