Do you know how employee absenteeism is affecting your business? According to the Gallup-Healthways Well-Being Index, employee absenteeism represents close to $84 billion in lost productivity across all industries. You may be wondering what your share of that lost productivity is. Other studies have suggested that absenteeism carries an annual cost of $3,600 for each hourly employee within a company and $2,650 for each salaried employee.
Most companies agree that employee absenteeism is an important and costly problem. Surprisingly, however, many companies still don’t have the means to track and measure the effects of absenteeism.
(For more in-depth information on minimizing employee absenteeism, check out our free Attendance Policy guide).
What Are The Costs Of Employee Absenteeism?
If you’d like to calculate what absenteeism costs your company for any given month, you can use this simple method. To arrive at a reasonably accurate figure, you’ll need to know the number of hours lost to employee absenteeism in the month, the average hourly wage or salary of your employees, and the additional costs directly associated with the absenteeism, such as overtime wages or the cost of replacement workers. For the sake of simplicity, we’ll also work with the assumption that the cost of employee benefits is 30% of the hourly wage.
First, calculate the employee compensation cost per hour lost to absenteeism. If absences are paid, use the average hourly wage + 30% for benefits. If they are unpaid, use only the benefit amount (30% of average hourly wage).
Then, multiply that amount by the number of hours lost to employee absenteeism to arrive at the monthly compensation cost of absenteeism. Finally, add the additional costs associated with employee absenteeism, and you will have a good estimate of the direct costs of employee absenteeism during the month.
Indirect Costs of Employee Absenteeism
While the method above can give you an adequate estimate of the direct cost of absenteeism, the indirect costs are far more difficult to calculate but are nevertheless significant. Consider how absenteeism affects your company in the following ways:
Lost productivity: when employees are absent, work doesn’t get done. Even if replacements are brought in, chances are they won’t be as efficient as the absent employees they are replacing.
Management time: absenteeism triggers a ripple effect for managers who have to spend time making alternative arrangements, finding replacement labor, and making sure all critical tasks are covered. There’s also the time spent on training temporary replacements.
Customer service: absenteeism can result in delivery delays to your customers and lower service standards that can damage your reputation.
Morale: employees who have to put in extra hours and pick up a heavier workload because of absent co-workers can harbor resentment and anger as a result.
As you can see, the costs can add up quickly. But it’s important to go beyond the costs of employee absenteeism and examine the root causes behind it if your objective is to address the problem. But, first and foremost, companies must have a system in place to track and measure employee absenteeism.