The actual cost of employee absence

Like other complex business issues, employee absenteeism results in both direct and indirect costs to your business. Direct costs tend to be easier to quantify and include things such as:

  • Wages and salary
  • Employee PTO
  • Overtime costs
  • Replacement worker costs

The indirect costs tend to be harder to quantify and may differ for different industries or even for two businesses in the same industry. Generally speaking, these can include:

  • Morale issues for staff who have to cover for others
  • Breakdowns in collaboration and slower workflows
  • Resentment toward supervisors and company practices
  • Knowledge and expertise gaps that affect service
  • Diversion of executive attention and wasted administration time
  • And ultimately, lower productivity and higher costs

How much does that add up to for your business? The Centers for Disease Control and Prevention (CDC) has stated that productivity losses related to personal and family health problems cost U.S. employers $225.8 billion annually or $1,685 per employee. They go on to claim the indirect costs of absenteeism, disability, or reduced work output due to medical issues may be several times higher than a company's direct medical costs.2

The CDC estimates that productivity losses related to health problems cost U.S. employers $1,685 per employee.2

So, to answer the question of how much absence costs your business: If your company has 500 employees, at $1,650 each, the cost could be around $842,000 a year. On the other hand, if you spend $500 on medical benefits for 500 staff each month, your cost could actually be higher than your total medical expenditure – over $3,000,000 per year. So, it's an issue that warrants attention from business leadership.

The challenges of managing employee absence

Every business has operational needs. Staff with different skillsets need to come together on a specific schedule to create value and serve customers in a timely manner. Those employees have needs as well. Illness or injury can cause a short-term disability that keeps them out of work. Unexpected personal issues may arise that keep them from getting into the office. And even the healthiest, most highly motivated workers need and deserve to take time off. 

An effective program needs to consider the complex and sometimes conflicting array of human and operational needs. Plus, there are many legal and regulatory requirements that need to be considered.

Understanding employee needs

Unplanned absences can be particularly challenging for employers and there are unique items to consider. Fresh Business Thinking notes that two important categories of factors can contribute to these types of absences:

  • Motivational: job satisfaction, work ethic, compensation
  • Logistical: illnesses, childcare responsibilities, transport difficulties

A company policy to manage unplanned absences should aim to minimize absences that disrupt operations while at the same time account for employees' work-life balance needs. If a process for requesting time off is too burdensome or doesn't allow employees to stay home when they are ill, it will likely result in added workplace stress. According to the Chartered Institute of Personnel and Development (CIPD) in the United Kingdom, this can lead to a vicious cycle of increased absence – because stress is a mental health issue and one of the primary causes of unplanned absence.

Quantifying the operational impact

It's hard for executives to do anything about absences if they don't know what problems exist and why they exist. Data collection – reporting and tracking employee absence (and presence) — is fundamental to controlling absence and most business operations. Yet this essential step is among the hardest for many organizations to get right. Supervisors need to know how much leave each worker is entitled to, what they've already taken, and when they're eligible to take more. Higher-level executives need aggregate absence and leave data to determine staffing needs, project timelines, budgets – and, to tackle absence-related productivity challenges. But without clear policies and rigorously implemented processes for reporting and tracking absence and attendance, none of that information is available. 

A variety of software and other tools (even as basic as a manual attendance sheet) are available to help businesses track employee attendance. Once data is made available, there are several ways to calculate absenteeism rates and analyze the information to find patterns and gain insight into a company's problems. A historical study that tracks results over time can be instrumental in determining the extent of the issue and whether things are getting better or worse. A deeper dive into the data can identify key indicators, such as specific locations or divisions that experience higher absence rates. However, it's important to note that there needs to be an ongoing commitment to data collection to understand whether specific steps to manage absenteeism are working. 

Understanding legal and regulatory requirements

There are many laws and regulations at the federal and state levels that provide essential workplace protections for employees and staff. However, some of these laws have requirements that can complicate the implementation of a robust absence control effort. It's advisable to seek expert employment law counsel's assistance to ensure that administrative procedures and company objectives aren't at odds with these protections. According to The Society for Human Resource Management (SHRM), these are among the types of laws that need to be taken into account:

Wage and hour laws

Your practices cannot conflict with the Fair Labor Standards Act (FLSA) and similar minimum wage laws at the state level, such as making improper pay deductions due to an absence.

Paid-sick-leave laws

Many states obligate employers to accommodate sickness-related absence and restrict disciplinary measures for these absences.

Family and medical leave laws

If your business is covered under the federal Family and Medical Leave Act (FMLA), you are required to give eligible employees up to 12 weeks of job-protected leave to treat a serious health condition or take care of a family member with a qualifying condition. You must also adhere to a range of notice and documentation requirements. 

Military leave laws

In addition to FMLA, the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) designates four specific types of legally protected leave for military members and their families.

Workers' compensation laws

Every state has workers' compensation laws that provide a number of leave and care benefits for workers suffering from workplace-caused sicknesses and on-the-job accidents.

Disability discrimination laws

Absence control measures have to account for the federal Americans with Disabilities Act (ADA) and similar state laws.

Equal employment opportunity laws 

These federal and state laws prohibit discrimination in terms and conditions of employment.

Unemployment compensation  

If excessive unauthorized absence is used as grounds for dismissing an employee, the employer must show evidence of that misconduct, or the employee will be eligible for unemployment compensation. Documentation must be presented to show that the absences were both excessive and unauthorized. 

Taking steps to create an effective absence management program

When supervisors have the attendance information they need, they can better plan for workload ebbs and flows. When employees have a clear understanding of their time-off benefits, they can feel a greater sense of control over their lives. And when everyone in the company knows what it takes to get things done, there's less chance of employee absence impacting operations. So, it's unsurprising that a well-defined plan can help return the following benefits to employers3:

  • Increased employee engagement, satisfaction, and retention
  • Policy consistency across the organization
  • Compliance with labor laws
  • Reduced administrative errors
  • Increased productivity and efficiency 

Here are basic steps a business can start to take to arrive at a more effective absence management system: 

1. Establish centralized leave reporting and tracking 

Data gathering that encompasses all forms of employee leave is a crucial first step to understanding absence problems -- and making the business case for an ongoing program to address the issue. Accurate reporting and tracking can also provide valuable operational benefits, such as helping to inform workflow planning efforts. It will also help avoid or mitigate legal and regulatory issues, for example, when there's a question about whether the company correctly handled an FMLA leave request. 

Ideally, HR and your leadership team should obtain a broad range of attendance management reports detailing usage patterns, absence trends, claimant status, and cost. Centralization is vital: Using the same department or external vendor to track and administer employee absences makes for a better, more efficient experience for employees and employers alike. Many businesses take an incremental approach, for example, by starting with a system to manage STD and FMLA leaves together, then integrating additional leave types like long-term disability, Workers' Compensation, paid time off, sickness, vacation, and parental leave. To help with implementation, you should provide a central leave reporting portal (by phone, online, or both) for at least STD and FMLA leaves. 

2. Understand your legal and regulatory requirements

Depending on your company's size, where you operate, and other factors, the policies you define and implement may have to comply with any or all of the previously noted laws, including, the FMLA, the ADA and various others. Employment law is highly complex and constantly in flux. Expert employment counsel should be used to help your business take appropriate actions to satisfy federal and state requirements and define a leave and absence policy that meets your operational needs. 

3. Define your leave policy and practice in as much detail as possible

Employees want and deserve to know how many paid sick days they get, what holidays are observed, how paid time off is accrued, how to ask for days off, and what happens to unused days. Managers and executives also need to understand and comply with all leave requests and reporting obligations. But your policy needs to cover much more than sick days and vacation leave. Eligibility rules and procedures should also spell out your practices for as many kinds of employee leave as possible, including:

  • Parental/adoption/birth leave
  • Family care leave
  • Prolonged medical leave
  • Military exigency (deployment) for a family member 
  • Jury duty
  • Voting
  • Disability leave

SHRM notes that such programs commonly define various approaches to manage absence, such as4:

  • Taking disciplinary action for excessive absenteeism.
  • Verifying illness after a specified period of time.
  • Using PTO banks to help reduce unscheduled leave.
  • Focusing on personal recognition for employees with positive attendance records and behaviors.
  • Encouraging planned vacations to allow employees to recharge.

Part of managing absence includes having a plan for employees to return to work after a medical issue or minimize the need for health-related leave. Consider including as part of your policy:

  • A full Return-to-Work (RTW) program that includes disability duration guidelines; an interactive process where employee, HR, manager, case manager, and/or a physician conduct return to work interviews and discuss possibilities; and other reasonable accommodations to facilitate return to work.
  • A process for referring employees to health programs such as Employee Assistance Programs, disease management, and wellness programs can solidify employee absence control efforts by proactively dealing with health issues before they turn into an extended problem. 

 4. Comprehensive communication and education 

Once your leave and absence measures have been detailed and processes put into place, those items need to be actively communicated to every level of the enterprise. Employees need to be made aware of their benefits, rights, and responsibilities. FMLA and other notice requirements should also be strictly followed. To ensure compliance, you should do more than just inform executives and managers about your policies. Company leaders should be educated about the bottom-line benefits of sound absence policy, along with the legal, regulatory, and operational consequences that can result from failing to observe a required procedure. They also need to be able to explain and clarify procedures for their workforce.

Start by assessing your company's current efforts

The Guardian Absence Management ScorecardSM can help HR and other executives see how their absence management system measures up to similar companies. It will also provide customized policy and process recommendations that can help drive better results. 

Resources are available to help employers better manage leave and absences:

Workforce management software and platforms

Many software platforms are available to help facilitate leave requests without paper forms and allow HR to track leave balances and approve requests. They may even help keep track of employee availability, compliance, and other tasks relating to the leave process. While these systems can be an essential component of your overall employee leave and absence solution, they are not the total solution. Your HR people still need to create, administer, and manage all other aspects of the leave management system.

Third-party administration

Using third parties to oversee absence management can alleviate the administrative burden on your HR team, reduce paperwork, and help ensure consistency and objectivity in employee treatment, which is key to compliance. And since most FMLA leaves are related to an employee's health condition, outsourcing these leaves, Short Term Disability (STD), and other items to the same external resource can help maximize the success of your leave management system. If your company needs help with the demands of FMLA and other staff leave management issues, consider learning more about Guardian Absence SolutionsSM. It's a resource that can help simplify administration and give employers more time to focus on core business needs.

Frequently asked questions about absence management

What is absence management?

The concept of leave management is simple: it's about the policies and processes HR staff and companies put in place to manage employee leave and absence. The goal of an absence management system is to help increase employee engagement by ensuring workers take advantage of leave for illnesses, vacations, and other valid reasons while minimizing the operational disruptions and productivity losses that can result when team members are unavailable to work.

How can absences be managed?

Broadly speaking, absences can be managed in much the same way that HR and business leaders handle other operational issues:

  1. Information needs to be gathered so that management better understands absence trends and the scope of the problem.
  2. Based on that learning – and an understanding of the applicable legal and regulatory requirement – policies and processes need to be defined to address the specific problems found.
  3. Managers and employees need to be educated about the measures that need to be taken and incentives to act accordingly.
  4. Ongoing data measurement tracks the success of those efforts and informs the process for making needed adjustments.

How do you manage short-term disability absences?

The issues involved in managing short-term disability absence vary significantly by industry and company, so there's no single correct approach for every individual situation. However, as with other leave situations, a business should have tracking and reporting procedures in place to understand how this type of absence is used, in addition to a clearly communicated policy with specific procedures spelled out for employees and managers in the event of an STD absence.

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