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Most Firms Don’t Track Cost of Days Off

Corporations’ fervent cost-cutting efforts in recent years apparently stopped short of examining the issue of employees’ days off, according to a recent survey.

September 16, 2011
Corporations’ fervent cost-cutting efforts in recent years apparently stopped short of examining the issue of employees’ days off.

A recent survey by Hewitt Associates, a human resources consulting company based in Lincolnshire, Illinois, found that many companies can’t put a price tag on what it costs them when employees don’t show up for work, whether they’re out sick or taking a vacation day. In fact, three-quarters of the 421 companies surveyed could not even estimate how much sick pay cost them as a percentage of their overall payroll.

“The survey demonstrates that there are a good number of employers that don’t have a good appreciation of what the costs of absence are,” says Kim Stattner, a principal in Hewitt’s health management consulting practice. “If they don’t understand what the costs are, they equally don’t have a good understanding of what the productivity impacts are on their business.”

The 25 percent of companies surveyed that came up with the cost of sick days put it at 1 percent to 3 percent of payroll. Extrapolating from that, Hewitt concluded that total paid time off, including vacation days, sick days and disability, could cost companies as much as 9 percent of payroll.

Stattner said data from the Bureau of Labor Statistics show that the cost of paid time off is equal to the cost of medical benefits. For each $1 a company spends on benefits—a category that includes paid time off, medical benefits, retirement plans, and Social Security and Medicare contributions—25 cents goes to time off and another 25 cents goes to medical benefits.

“We all know that companies spend a lot of time managing their health care, but employers haven’t historically spent as much time managing their time-off programs,” she says.

The complexity of time-off programs makes it hard for companies to keep track of employees’ absences, she added. Many companies dole out sick days, vacation days, holidays and personal days separately, and according to the survey, just 11 percent of companies provide the same time-off program for all their employees.

Stattner suggested that paid-time-off banks, which are programs that encompass sick days and personal days as well as vacation time, can give companies a better handle on employees’ time off and the expense involved.

In fact, according to the survey, paid-time-off banks are growing in popularity: 32 percent of companies say they used a paid-time-off bank for at least some portion of their workforce, up from 18 percent in 2000.

Susan Kelly

Susan Kelly is a reporter for Financial Week, a sister publication of Workforce Management.