How Absenteeism Impacts Your Bottom Line
What Employee Absenteeism is Costing Your Business
For a decade or more, businesses and human resources organizations across every industry have puzzled over what drives employee productivity, an important contributing factor to an organization’s bottom line.
Though there are many factors to evaluate, one established consensus is that there isn’t a single business that is not paying the price for employee absenteeism.
And the cost to an organization isn’t just financial. There are also several hidden, less obvious impacts absenteeism has on business productivity.
(For more in-depth information on minimizing employee absenteeism, check out our free Attendance Policy guide).
The Cost of Reduced Employee Productivity – In Dollar Signs
According to a study conducted by Gallup-Healthways in 2016, employee absenteeism across all industries cost employers $84 billion dollars annually in lost productivity. Additionally, it has been estimated that absenteeism costs companies roughly $3,600 per year for each hourly worker, and $2,650 per year for each salaried employee.
The Gallup-Healthways study does not cite the reason for the absences, but in 2015, the Centers for Disease Control and Prevention (CDC) stated that the price paid for lost productivity was much higher, reporting monetary losses linked to illness-related absenteeism cost businesses $225.8 billion annually.
But what does that mean for your business?
How to Figure out the Price Tag for Your Organization
To figure out what a loss in employee productivity related to absenteeism may be costing your organization, The Society for Human Resources Management (SHRM) recommends employers evaluate the price tags associated with overtime and temporary or contract workers needed to fill in for absent employees.
Before calculating, it is important to note, SHRM reports overtime is more frequently used when replacement for hourly workers is needed, and temporary or contract employees are more used to replace the work of salaried employees.
Use this formula:
(Cost of base payroll + Overtime Cost + Cost of temporary or contract workers) / Total payroll for full-time employees in the organization
In its 2013 study on the subject, SHRM reports the average direct cost of total paid time off was 15.4 percent of an organization’s payroll. How did your organization fare?
But That’s Not All – The Hidden Impact of Reduced Employee Productivity
While overtime pay or wages paid to temporary replacements cost an organization directly, it’s not just payroll that is impacted by employee absenteeism.
Three-fourths of those surveyed in the SHRM study indicated “employee absences have a moderate to large impact on productivity and revenue.” What does that mean? It means employees are also feeling the pinch.
The SHRM study, mentioned previously, also reported respondents to its survey felt:
- unplanned absences add to the workload (69%)
- absences increase stress (61%),
- and disrupt the work of others (59%),
- and hurt morale (48%).
In addition to employee morale, other hidden impacts on productivity may include those on management, safety and compliance and service to customers.
How to Protect Employee Productivity By Fighting Absenteeism
Absenteeism may or may not be a factor in employee engagement at work. But according to the Gallup-Healthways Survey Well-Being Index on Employee Engagement, 70% of employees are not engaged at work, and 51% of Americans are searching for new jobs or watching for openings.
Since absenteeism is shown to increase the workload and hurt employee morale, reducing its impact on employees could be a factor in retaining the staff you need (and want) to run a productive business.
And that’s not saying anything about the money to be saved on payroll.
You can begin reducing absenteeism, by communicating with your team and creating a strong attendance policy for employees.
While ATS is passionate about time and attendance and excited to support organizations navigate workforce dynamics around timekeeping and employee time clocks, we recommend you reach out to your regional and/or local HR chapter for more information on common workplace advice and procedures.