Gravett Logo 9

Article

Article No.: 10-10   

Article Title:  Absence Management Can Save You Money!

Author: Greg Brooks & Mary Edge, Guest Columnists

(Close this window)

How much money is your company leaving on the table?  Maybe it is time to find out.

During the past 15 years, health care costs have been the primary focus of most organizations.  There is another significant benefit cost that continues to grow at rates comparable to health care cost increases, but most companies have traditionally ignored.  The high cost of employee absence has recently come into focus as companies are becoming more aware of the high costs associated with employee absences.  A recent survey conducted by Kronos and Mercer attempted to capture the true cost of employee absences and the results are significant.  Employee absence costs can range from 25%-49% based on employee classifications and demographics.  These percentages can be somewhat misleading since they include the cost of planned absences such as paid time off or vacation.  Excluding the cost of planned absences (such as PTO and holidays), the overall costs can still range from 9%-11% of payroll for unplanned absences.  A minimal reduction of 1-2% of total absences can result in significant savings for most companies.

The following chart illustrates the potential savings by reducing overall absence cost by one or two percentage points.  Assume a company’s average annual pay per employee is $40,000 and the current absence cost is 12% of payroll.

Company EE Population

Total Cost of Absence

Annual Savings at 1% Reduction

Annual Savings at 2% Reduction

2,000

$9,600,000

$800,000

$1,600,000

5,000

$24,000,000

$2,000,000

$4,000,000

10,000

$48,000,000

$4,000,000

$8,000,000

20,000

$96,000,000

$8,000,000

$16,000,000

40,000

$192,000,000

$16,000,000

$32,000,000

A minimal reduction in the overall % of absence can result in significant savings.

Absence Management is not just about leave tracking and reporting.  Simply stated Absence Management is a holistic approach to managing absences by implementing an integrated system which manages all aspects of leave administration from eligibility through return to work case management (including integration with other HR initiatives) and minimizes the high cost of absence and productivity loss.  This integrated approach gives employers the tools to measure improvements in absence reporting, employee awareness, productivity and cost savings.  A consistent approach to absence management also leads to fewer complaints, grievances and lawsuits.  The cost of such legal actions can be significant if not managed or defended with complete and accurate data.

There are several steps, some of which we will touch on below, that employers must take to implement a total absence management solution and achieve the desired reductions in total absence cost.  The first and most important step is to gain the commitment of your senior leadership team to support the initiative.  Implementing an integrated absence management system will be a huge culture change in most organizations.  It is absolutely necessary to ensure that absences will be administered consistently and without exceptions to plan rules.  Without the support of senior leadership, you will not be able to achieve the required consistency.

Understanding the cost of your employee absences is another step in being able to implement an effective absence management solution.  Fewer than 20% of companies calculate the costs associated with employee absences, and only 33% have a system in place to track leave utilization.  Without this understanding, it will be nearly impossible to measure the success of any solution implemented.  In calculating the total cost of absence, three major costs must be considered

  1. Direct Costs - The cost of wages paid while absent, disability benefits, and insurance premiums for absent employees.
  2. Indirect Costs - Overtime premiums to cover absent employees, lost productivity, cost associated with hiring temporary resources, cost of overstaffing, and hiring/training of replacements.
  3. Administrative Costs - The internal costs of staff to administer plans, vendor services/fees and general staffing overhead.

Typically absence costs are bundled with other benefit related expenses so the true costs are often underestimated or misstated.

Defining the requirements of an automated leave tracking tool is another step you will need to take.  What do you need this tool to do in order to assess and measure employee absences?  One of the biggest challenges employers face when  managing leaves is understanding and applying the complex rules and regulations related to federal, state and company defined eligibility rules.  Another need is tracking and measuring concurrent leaves such as FMLA.  Typically, the approvers of employee requests do not understand all of the rules associated with such requests, thus errors can result in more time being approved than eligible.  Another requirement may be to help prevent overpayments of unused and carryover PTO time; thereby assisting with the calculation of the financial liability associated with carryover policies.  

When considering the implementation of an automated tracking solution, several product features are essential:

  • Employee self service capability through a web or portal page
  • Manager self service capability
  • Assisted help services via desktop
  • Eligibility and adjudication calculators with appropriate federal, state and plan rules
  • Ability to track multiple and concurrent leaves
  • Tracking and notification of documentation requirements
  • Ability to integrate with other key systems (i.e. time and attendance, payroll, vendor systems)
  • Document management capability
  • Web based reporting and analytics

There are several vendors in the market offering automated leave tracking solutions to employers.  Understanding the market is critical in meeting your company objectives in implementing an overall solution.  For example, several payroll or time and attendance vendors offer an automated leave tracking tool as an integrated solution in their suite of offerings.  Other providers offering products include; insurance carriers, technology companies, total Human Resource outsourcing vendors, and total benefit outsourcing vendors.  Each solution offers different advantages and disadvantages that must be considered when making decisions in implementing an absence tracking system.

Implementing an automated tracking system is only the tip of the iceberg in recognizing savings opportunities through an integrated total absence solution.  Part of your implementation project plan should be to integrate with existing systems to ensure you are properly measuring and reporting absence data.  Integration points include HR systems, benefits systems, payroll systems, time and attendance systems, and vendors that provide workers compensation, long term and short term disability administration.  Lack of integration may result in data inconsistency or missing data due to duplication and multiple sources of data.

Beyond absence management, absence data can be used with wellness initiatives, total health and productivity initiatives, return to work case management and targeted interventions through education and training.  

So, how much do you think your company is leaving on the table?  Why not find out today.  If you are interested in more information, please contact Greg Brooks, gkbrooks356@comcast.net.   

(Close this window)(Back to top)