Employee Absenteeism and cost

Learning Objectives
Understand the absenteeism Learn types and causes of absenteeism and the associated hidden costs of the absenteeism Know why organization has absenteeism problem Describe how to measure absence Implement an effective HRM practices to reduce absenteeism

What is Absenteeism?
Any failure to report for or remain at work as scheduled, regardless of reason According to Websters Dictionary, absenteeism is the practice or habit of being an absence and an
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Types of Absence
Unplanned incidental absences: absence of five work days or less, such as casual sick days, where the occurrence was not known and approved ahead of time by the employees supervisor. Planned absences: short or moderate duration absences such as vacations and holidays Extended absences: absences lasting beyond one week, often unplanned, and generally due to a disability

Absenteeism Unplanned incidental absences + extended absences

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Types of Absence
(1) Authorized Absenteeism: If an employee absents himself from work by taking permission from his superior, (2)Unauthorized Absenteeism: If an employee absents himself from work without informing or taking permission and without applying for leave, (3) Willful Absenteeism: If an employee absents himself from duty willfully, such absenteeism is called willful absenteeism, (4) Absenteeism Caused by Circumstances beyond Ones Control: If an employee absents himself from duty owing to the circumstances beyond his control like involvement in accidents.
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Categories of Absenteeism:
K.N. Vaid classifies chronic absentees into five categories viz., (1) Entrepreneurs (2) Status seekers (3) Epicureans (4) Family-oriented (5) The Sick and the Old

Model of Employee Absenteeism

Personal Characteristics and Absenteeism

1 2 3 4 5 6 7 Education: Mixed: Educ Sickness absenteeism Education unrelated to non-sickness abs Org tenure: Tenure Absenteeism Age: Younger more short term; older more long term. Men: Age Absenteeism Women: No relationship Sex/Family responsibility: Parental status and elder care issues (by 2020 1 in 3 will have the latter) Family Size: Size Absenteeism

Personality
Conscientiousness Absenteeism

Extroversion Absenteeism Anxiety/depression Absenteeism

Review of Absenteeism Model

Health causes (in UK); 1.Cold or flu (93%) 2.Stomach upset and food poisoning 3.Headaches and migraines 4.Back problems 5.Stress Absenteeism in USA; 1.Personal illness (35%) 2.Family related issues (21%) 3.Personal needs (18%) 4.Entitlement Mentality (14%) 5.Stress (12%)

Cost of Absenteeism
MERSER (2008) Survey found that the average yearly direct and indirect costs for major absences add up to about 36% of base payroll (World at work, 2008) Total costs of incidental unplanned absences are 6% of payroll (3 times from their direct cost) The total costs for planned absences average 26.6% of base payroll ( 2.8 times from their direct average costs of 9.6% of pay) Across all companies, $20.18 billion was paid out to staff who were absent and to

Cost of Absenteeism
Unscheduled absence cost; small business $62,636/year in 1993. an average $755 per employee per year lose an average of 2.8 million work days each year Cost in USA more than $74 billion

Absenteeism cost
Absences have three areas of financial impact: Direct costs for the benefits or wages paid to employees while absent, Indirect costs for lost productivity or the replacement worker expenses to coverabsences and minimize loss of productivity, and Administrative expenses, whether due to internal staffing and overhead, or to vendor services.

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Replacement Workers Efficient

Replacement workers are less efficient: 71% as efficient during unplanned incidental absences 79% as efficient during planned absences 80% as efficient during extended absences The work output of 4 to 8 co-workers was reduced by 19%

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Absenteeism Rate
Number of worker-days lost through job absence during period = ---------------------------------------------------- X 100 Average number of employees x Number of work days Example: Compute absenteeism rate if 300 worker-days are loss through job absence during a month having 25 scheduled working dates at an organization that employs 500 workers.

How Absenteeism Create Cost

Productivity Productivity

Administrative Administrative

Financial Financial

Decrease in Productivity
Lost productivity of the absent employee Time lost in the sourcing and training of new or replacement staff Overtime for other employees to fill in Decreased overall productivity of those employees Morale and motivation issues can greatly decrease the productivity of staff Negative impact on team work Unplanned absence caused a 54% decrease in productivity/output (Mercer/Marsh survey)

Administrative Costs
Increased supervisory and administrative costs in the monitoring and management of absenteeism program Increased costs associated with securing replacement staff

Financial Costs
Salary costs for new or replacement staff Overtime payments Medical and insurance costs may increase Possible loss of business or dissatisfied customers ( 39% drop in sales and customer service) Problem with employee moral

Collecting right data

Compute total employee hours lost to absenteeism for the period Compute weighted average wage or salary/hour/absent employee Compute cost of employee benefits/hour/employee Compute absent workers paid benefits Compute total compensation lost to absent employees Estimate total supervisory hours lost to employee absenteeism Compare average hourly supervisory salary + benefits Estimate total supervisory lost to managing absenteeism problem Compute the cost of substitute employees Estimate the costs of reduced quality or quantity of work outputs Estimate total costs of absenteeism

Total Hours Lost of Absence

Example; In P Electrics, total working hours are based on general working conditions such as 40 hours/week and 52 weeks /year. However employees received paid 2 weeks vacation time and 5 working days as holidays. Total employee No. is 3,000. 1) Compute total working hours and 2) Total scheduled work hours lost annually by considering absence rate is 1.75% of scheduled work time Annual hours of scheduled work = 2,080-8040=1,960 Therefore total scheduled work time = 3000 X 1960 = 5,880,000

Compensation for Absent Employees Time

Example; assume that 60% out of the average percent of total absenteeism belongs to blue collar, 30% clerical and 10% management and professional employees and average hourly wage is $23.80, $17.80 and $38.50 respectively. Compute the average hourly wage rate per absentee. Blue collar 0.60 23.80 14.28 Clerical 0.30 17.20 5.16

Benefits for Absent Employees

Compute P Electrics average annual salary per employee by assuming that the average annual salary per employee is $23.29. Average annual salary per employee = $23.29 X 2,080Hrs = $48,443.20// Compute average cost of benefits per employee per year in considering that the direct benefits of the employee is 40% of total compensation. Average cost of benefits per employee per

 Compute the total compensation lost per hour per absent employee. Cost of benefits per hour employee = 19,377.28/52 X40 = $9.32 = $23.29 + $9.32 The cost of employee benefits per hour per employee = $32.61 Total compensation cost for all employees = 102,900 X $32.61

Total Compensation for Absent Employees

 Most employees miss work because of personal illness or illness involving a member of the family. Employees also miss work because of stress. The primary factor affecting an employees stress level is his/her perception of the relationship with his/her supervisor or manager. Authoritarian management styles promote the highest rates of employee burnout and absenteeism. Absenteeism is costly to a companys bottom-line.

Some facts about Absenteeism

Authoritarian managers
The characteristics of an authoritarian manager: Poor listening skills and communication skills Tendency to set unreachable goals Personal inflexibility Tendency to blame others for problems Insist that things must always be done their way Tendency to micro-manage and be task-driven Sometimes yell, scream, and curse at employees Would you want to work with someone like that?

More Factors Affecting Absenteeism

Work conditions: The relational climate of a job can affect employees willingness to show up to work. Negative relationships between employees and their supervisors can result in absenteeism. Sometimes employees miss work because of unresolved conflict between each other. Interventions to reduce interpersonal work stress can help deter employee absenteeism and burnout

Burnout & Absenteeism Burnout has been identified as one of the principal causes of both absenteeism and excessive turnover. Lets therefore look at some of the psychological aspects of burnout.

From enthusiastic to burnt-out

Stages of Career Burnout: Enthusiasm Stagnation Frustration Apathy Intervention/No Intervention Burnout

Where do you place yourself in this hierarchy?

More Factors Affecting Absenteeism

Lack of incentives: While many companies punish employees for missing work, few think of rewarding those that show up faithfully. Examples of incentives that work: Being able to cash it unused sick days Bonuses for perfect attendance Certificates of achievement

More Factors Affecting Absenteeism

No attendance policy: Many companies do not have an explicit policy requiring employees to honor their commitment to the job. An attendance policy allows a manager to intervene in cases where an employee is frequently absent. An official policy allows managers to identify and refer to the EAP employees that may have other problems e.g., alcoholism, domestic problems, etc.

Combating Absenteeism
Using an absence tracking tool Change management style Identify authoritarian managers Provide appropriate management training Change working conditions: Adopt policies and values that promote employee respect and professionalism Develop and promote an internal conflict resolution procedure Take employee complaints seriously sometimes listening is enough. Work to create a just working climate.

Excessive Absenteeism
What is excessive? Multiple metrics: Number of sick days used - Dept of Labor: Mean is 7 days Changes in absence rates (paid unscheduled absence hours/paid productive hours) Lower in bad economic times, higher in good times 2.3% in 2005, 2.5% in 2006, 2.3% in 2007

ABSENTEEISM COSTS (lower level employee, 2007)

1. Salary 2. Benefits 3. Replacement employee (cross-training, temp help, supervision, overtime) 4. Unabsorbed burden (unused capital equipment, rent, light, in-efficient use of materials) 5. Loss profit contribution (value added) Total 99.70 28.12 10.23

67.75

81.81 $287.61

Focus: Managing Voluntary Absenteeism

Determining what percent of absence is voluntary (avoidable) and what is non-voluntary is tricky Experts believe 40% is voluntary and 60% is non-voluntary 40% may be the max managers can affect (a restriction in range)

Absenteeism Measures
1. Frequency Measure: Total number of times in which the leave was availed /Total number of mandays scheduled to work The frequency rate represents the average number of absences per worker in a given period 2. Severity Measure: absent total # of days absent during a period /total # of times during that period

3. Attitudinal Measure: Frequency of 1 day absences 4. Medical Measure: 5. Blue Monday: 6. Worst Day: Frequency of > 3 day absences # people absent on any given day (e.g., Monday) derived from #5 to indicate which day of the week is worst.

RECOMMENDATIONS FOR INCREASED UNDERSTANDING OF ABSENTEEISM

1. Use standardized measures and time frames 2. Study attendance 3. Study white collar absenteeism 4. Examine how other HR practices affect absenteeis (next 2 slides) 5. Encourage health 6. Engage in more creative thought

Effects of Various Human Resource Practices on Reducing Absenteeism Method # of Studies Effect

Effects of Various Human Resource Practices on Reducing Absenteeism: HR Professionals

Well Pay (Buy back unused sick leave) 53 3.4 Verification of illness 74 No-fault 59 Disciplinary action 89 Personal recognition 57 Part of yearly performance review 82 2.9 Bonus 51 Paid-leave banks (PTO) * 60 Adapted from CCH, www,cch.coom/preess/news/2007

3.2 2.9 3.4 2.6

3.3 3.6

PRACTICAL STRATEGIES FOR REDUCING ABSENTEEISM

1. Increase job satisfaction/autonomy via a. Job redesign c. Decreased stress b. Supervision d. Flexible schedules 2. Use motivation strategies more frequently and creatively a. Operant conditioning b. Goal setting 3. Use work group dynamics a. Small groups b. Promote attendance norm; tie to rewards? 4. Consider time lags of interventions (next slide)

Strategies for Affecting Absenteeism over Tim e*

(Length of Time to Impact) Short term : < 3 m onths M id-term : 3 m onths1 year Long -term : > 1 year Gender Age Depression Smoking Heavy drinking Drug use Exercise

Attendance incentives Job satisf action Injuries/illnesses Organizational commitm ent Low stress/injustice Job involvem ent Social pressure to attend workeaningful work M Group/culture with strong attendance norm Non-union or no paid sick leave environment Day shift Flextime