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Sickened By the Cost of Absenteeism

September 2, 2003
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In 2000, Lab Safety Supply, an industrial supplies distributor in Janesville, Wisconsin, added a medical clinic to its facility so its 800 employees wouldn’t have to leave the building to get medical care. It reduced the time they are out of the office for doctor’s visits from half a day to less than an hour, and the cost of a doctor’s appointment dropped from $150 to $25, says Tim Markus, human resources manager.

    The company saves $400,000 a year in health-care costs thanks to the clinic, and that doesn’t include factoring in lost-productivity costs related to absenteeism, which he estimates increases the savings by threefold. "It also reduces our disability costs because employees go to the clinic for conditions they wouldn’t normally go to their own doctor for," he says. "They are detecting health risks, such as high blood pressure or heart conditions, sooner and managing them before serious problems occur." Markus estimates that 70 percent of the cases treated in the clinic would have required more extensive treatment and time off the job if they had been left undiagnosed.

    Adding an on-site clinic may seem an unusual step for a small company, but as absenteeism costs grow, employers are scrambling to find ways to manage their expenses. In 2002, companies spent 15 percent of payroll on absenteeism, according to a recent study by Mercer Human Resource Consulting. For an employer with 5,000 employees and an average base pay of $40,000, that adds up to $30 million a year, yet companies are only beginning to recognize that absenteeism is a legitimate expense.

    Absenteeism costs, which were 14.3 percent of payroll in 2000, have since been rising steadily and will continue to climb. This is not because people are taking more time off, says Mercer consultant George Faulkner. It’s due to a combination of climbing health-care expenses and the fact that employers are doing a better job of tracking the indirect costs associated with absenteeism. "The aging workforce is causing disability claims to increase, workers’ comp costs are up 20 percent, and insurance carriers are getting more aggressive about evaluating claims," Faulkner says, all of which forces employers to become more conscious of where the money goes. Internally devised cost-tracking systems, off-the-shelf software and outsourced absence-reporting services are all growing in popularity as employers try to figure out where their expenses are. "As employers do a better job of tracking absenteeism, they realize how much they are actually spending on it, so the cost appears to rise."

The hidden price of sick days
    Of all the expenses related to absence, unscheduled time off has the biggest impact on productivity, profitability and morale. Companies lose approximately 2.8 million workdays each year because of employee injuries and illnesses, according to the U.S. Bureau of Labor Statistics. The inability to plan for such absences forces companies to hire last-minute temporary staff, pay more overtime and add a staffing margin to replace anticipated lost labor, all of which contributes to total cost, says Matt Lewis, national sales director for Synchrony, an integrated absence-management program from MetLife Insurance in Dallas. "Three to 6 percent of any given workforce is absent every day due to unscheduled issues or disability claims," he says. "To compensate, most companies continually overstaff by 10 to 20 percent to mask lost productivity. That’s a colossal cost."

    It’s also a cost that can be controlled if employers are tuned in to the needs of employees, says Lori Rosen, workplace law analyst for CCH, a Chicago tax and business law research and publishing firm. While scheduled time off for employee vacations is an inevitable cost of doing business, costs related to unscheduled absences can be reduced through wellness programs, disability management and flexible time-off options.

    Wellness programs that target common costly medical conditions such as diabetes and heart disease are a popular approach to curbing sick days and reducing disability expenses because they address the needs of high-risk employees before they require medical care. For example, when pharmaceutical giant Hoffmann-La Roche, in Nutley, New Jersey, implemented a series of targeted wellness programs in the late 1990s, the company saw a 40 percent decrease in the risk for hypertension and high blood pressure among employees, a 20 percent reduction in risk for alcohol abuse, and a 16 percent reduction for illness related to poor eating habits, says Molly McCauley, director of health promotion. "The savings kept our health-care costs stable for the past five years while other companies saw double-digit increases."

    When employees do require time off because of illness or injury, disability-management programs get them back to work sooner through closer management of treatment and recovery. His group worked with a woman who was receiving weekly chemotherapy injections that left her weak and nauseated for up to three days, forcing her to miss work. "She was a valuable employee who was key to her organization, but the unpredictable side effects from the treatments made it difficult to plan around her because her boss never knew when she would be back to work." Her case manager helped her find a new physician, who recommended a different combination of drugs that had fewer side effects and moved her treatments from Wednesday to Friday so that she could recover over the weekend. "It reduced her weekly time off from three days to four hours and allowed her boss to plan for her absence," Lewis says.

    On average, adds Faulkner, managed-disability programs save 10 to 20 percent of related absenteeism costs and get employees back to work two weeks sooner than non-managed programs.

    For unscheduled time off that isn’t related to illness or injury, paid-time-off programs were ranked the most effective method for absence control, reports a recent CCH survey on absenteeism. Unlike traditional time-off programs, which are broken into sick days and vacation days, PTOs lump all days off into a single flextime category that employees can use for anything.

    Since PTOs allow employees to use time off for any reason, they can schedule absences in advance and use only the amount of time needed, so they are away from the office for fewer hours and their employer can plan for their time off, Rosen says. "You can’t escape the salary costs of time off the job, but when you plan ahead you can eliminate indirect costs such as hiring a temp, paying someone else to work overtime or lost productivity."

    Some companies further boost the effectiveness of PTOs with reward programs. When Educational Testing Service, a test publisher in Princeton, New Jersey, implemented its PTO in 2000, employees were offered $100 in cash or gift certificates at the end of the year for up to three unused days off. Before the PTO, employees used up most of their time off, but last year, she estimates, the company paid $30,000 to its 2,400 employees in exchange for unused time off. In fact, the program was so successful it proved to ETS that employees didn’t need so many personal days, says Ricki Haber, benefits manager. "Sixty percent of employees had at least three days left over, and many had six or seven." Consequently, the company plans to drop the number of PTO days from 10 to 7 in 2004.

    Regardless of the absence-management programs available, however, costs won’t go down until employers make greater efforts to manage their impact, which they don’t appear to be doing. While more companies are tracking their costs, 83 percent of companies surveyed by CCH believe that unscheduled absenteeism is likely to stay the same or get worse in the next two years.

    "It’s such a nebulous cost," Lewis says, "that most employers still aren’t sure what they spend on absenteeism."

Workforce Management, September 2003, pp. 72-73 -- Subscribe Now!

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