May 2009 - The Cost of Sick Days

By Emma Kennedy, as featured in the Sunday Business Post (1.4.07)

Businesses in are paying a high price for employees who continually turn up late for work…

A recent report by British consultancy firm Peninsula found lateness among staff was costing businesses in €66 million annually. The study found that Monday was the day when most of the staff it surveyed – 65 per cent – were late for work. On average, it said that most employees were ten minutes late for work. Seventy seven per cent admitted to having lied about why they were late. Peninsula found the most common excuses for being late were public transport, heavy traffic, faked illness and lost keys.

Irish employees are also costing their employers money. According to research carried out by the Irish Small & Medium Enterprises Association (ISME), employees are absent for an additional six days annually on top of holidays and other authorised absences.

“With approximately 990,000 individuals employed by SMEs this equates to a significant 5.95 million man-days lost to the small business sector,” said Jim Curran, head of research with ISME.

Lateness Costs

According to Curran, absenteeism creates a huge impediment to the efficient and profitable running of a business, and inevitably impacts on competitiveness, as the indirect costs often outweigh the direct costs.

“The direct cost of absenteeism is estimated at €714 million based on an average cost of €120 per employee per man-day lost on wages, benefits and replacement costs,” he said. “This does not include the substantial indirect costs through disruption, late deliveries, decline in employee morale, dissatisfied customers and deteriorating productivity.”

For small businesses, staff absences are more costly. “Small companies are extremely labour intensive,” said Curran. “In a company of ten employees, two absent individuals represent 20 per cent of the workforce – a significant loss.”

Patricia Callan, director of the Small Firms Association (SFA) also highlighted the indirect costs of staff absenteeism. “The estimated cost of absenteeism takes no account of other direct costs, such as the requirement to replace absent staff with other workers or overtime payments, and the cost of medical referrals,” she said.

“There are also the indirect costs, such as the effect on productivity and quality, the increased work pressure on other colleagues and the admin time in managing absence. The overall cost in reality could be in excess of €1 billion.”

Commenting on the results of a survey conducted by the SFA last year, Callan said: “They show marked differences across sectors and regions, and show that small firms with less than 50 employees are less likely to have workers absent on sick leave than larger firms. The national average for absenteeism is 3.8 per cent, or nince working days. For medium firms, this rises to 4.9 per cent or 11 working days. For small firms, the average falls to 3.1 per cent or seven working days.”

Industry trends

The SFA survey also showed that most absenteeism occurred in the electronics industry, which averaged 16 days, followed by the metals and engineering sector at 11 days. “This may be explained by the repetitive nature of the work involved in these industries,” said Callan. The industry with the least amount of absenteeism is the wholesale distribution and transport sector where there is a lot of interaction between people and services.

While absences occur for legitimate reasons, including genuine illness and family emergencies, unauthorised absences are of huge concern for employers.

“The problem of unauthorised absenteeism has got to the stage where it is becoming increasingly impossible for small business owners to plan ahead with any certainty. It has now become completely unrealistic for a business to expect a full compliment of staff on a Monday morning,” said Curran.

Companies with a young workforce who enjoy socialising often have higher absenteeism rates due to hangovers. “Some 40 per cent of short-term absence occurs around the weekend, which raises red flags for many employers as to whether there are genuine reasons or not,” said Callan.

It is not just weekend that make us less likely to arrive in work on time, if at all. According to a spokeswoman for Softworks, a provider of time and attendance software, absenteeism is a seasonal issue. “Absenteeism can increase in the summer for many reasons,” she said. “Respiratory infections such as asthma may force employees to stay at home. Some may have parental responsibilities that become even move obvious when children are off from school for the summer break. Others may just find the lure of the warmer weather and brighter days enough of an excuse to pull a sickie or take a long weekend.”

Major causes

Stress is a key reason for employee absence. “Stress has arisen as a key cause of absence from work, replacing back pain as the most commonly cited problem on medical certs,” said Callan. “This is a particularly concerning development, as aside from absenteeism stress can lead to a less productive workforce, faulty decision-making, and ultimately the possibility of legal action being taken against the company for negligence or constructive dismissal.”

According to the SFA, stress is a big concern and not just an Irish issue. “An International Labour Organisation survey from 2000, shows that in the EU overall, 4 per cent of the gross national product goes to treat mentally ill employees, whilst in Britain, three in ten employees suffer from mental health problems, resulting in an estimated 80 million lost working days a year. The World Federation for Mental Health has predicted that, by 2020, the primary cause of lost working time will be stress. This is not just a workplace issue. It is a national problem that needs to be addressed with some urgency,” said Callan.

Possible solutions

Employee absenteeism needs to be treated delicately. Pauric O’Rourke of Breffney Coaching & Consulting said that employers should approach absenteeism as positively as possible. “It’s best to frame the issue positively in terms of attendance management rather than absence management. Employees can only perform at their optimum level, when they are present and actually on the job,” he said.
In relation to lateness and punctuality, O’Rourke said that a lot may depend on the culture of the organisation and the nature of the business.

“Management modelling and communication of accepted behaviours and expectations around workforce punctuality, be it starting times or client meetings, is critical in creating an ‘on time culture’,” he said.

O’Rourke said the first step to tackle employee absenteeism was to monitor it. “ A company may only fully realise the extent of the problem, when they actually measure and monitor the issue and view the statistics over a period of time,” he said.

“A systematic approach to recording and monitoring employee absence is a critical part of any attendance management system. To paraphrase the management guru, Peter Drucker – if you can’t measure it, you can’t improve it. The 2006 Chartered Institute of Personnel and Development (CIPD) Survey found that 86 per cent of Irish employers record their annual employee absence rate but 14 per cent did not.”

O’Rourke said employers were beginning to change their approach to attendance management.

“The traditional disciplinary and punitive approach to absence management is giving way to a stronger emphasis on attendance and rehabilitating employees,” he said. “The presence of American companies in has played a significant role in this shift. Still, the 2006 CIPD survey found that 82 per cent of respondents referred to disciplinary procedures in their sickness absence policy.”

Tackling absenteeism is a tricky business, and can be a challenge for employers. One company that can help to lessen the load is Softworks which provides client-server and web-based time and attendance solutions.

“From our experience, the companies that succeed take a systematic approach,” said Andrew Ferguson, Managing Director of Softworks. “Our customers check their absence figures using detailed reports look at what causes them and find out more about the issues they raise. Getting people back to work is easier than many people think. But often employers can be their own worst enemy because they don’t know how much absences cost their businesses, and this is a big mistake, because absence management can save business thousand to millions of euro, depending on their size.”

IT solutions to attendance management issues can work well, according to Ivan Agar, managing consultant with training and HR consultancy, Advantage Communications.

“Clocking-in systems and related IT solutions can be good, but should be used in conjunction with proper management systems,” said Agar. “Companies may use these systems where there are high numbers of staff, and for payroll administration.”

said systems like those provided by Softworks could mean big cost savings for employers

“The fact that the system will reduce the amount of time wasted dealing with paper timesheets and related issues is a given,” he said. “The subsequent tangible savings associated with this improved efficiency does not, however, reflect the larger savings picture associated with the implementation of the ClockWise solution.”