Sickness
absence is probably costing UK organisations a lot more than they realise, with
employers consistently underestimating the real price they are having to pay.A
recent study highlights the hidden monetary and human costs of the problem, by
Peter Dewis and Stephen Bevan
This article describes the results of a study, commissioned by UnumProvident
and undertaken by the Institute for Employment Studies, which investigated the
full costs of sickness absence to UK employers.
Introduction
Employers are becoming increasingly aware of the issue of sickness absence
in the workforce. This is for a number of reasons, including an increasingly
explicit ‘duty of care’ towards their employees, competitive pressure that causes
them to try to maximise productivity and a diverse workforce. More
particularly, employers are becoming increasingly aware of the costs arising
from sickness absence. For example, the most recent CBI survey – Counting the
Costs, 2002 Absence and Labour Turnover Survey, estimates that sickness absence
costs employers £476 per employee per year and that the annual cost to the UK
economy is £11.8bn.
Most of the published data on costs concentrates on the direct salary costs
of absent employees. Some earlier research sponsored by UNUM in the USA has
suggested that the total costs of sickness absence are much higher than these
direct costs. It is also clear that little is known about the factors that
determine these costs and how they might be controlled. Consequently, in August
2000, the Institute of Employment Studies was commissioned to conduct an
in-depth analysis of the total costs of sickness absence in a sample of UK
employers.
Methods
The first step for the IES was to develop a robust spreadsheet-based tool to
collect absence data. More details of this can be obtained from IES Report
3821. Data were collected under a number of headings:
– Employee staff group – including average annual full-time equivalents,
headcount, gender, age groups, absences by number of days, number of incidences
and duration
– Direct costs – including salary costs, employers’ NIC contributions,
pension contributions, bonus payments and contracted overtime
– Indirect costs – focusing on the costs of replacing absent workers
– Absence management costs – including line management time, human resource
department time, training and health promotion
The spreadsheet was then used to develop nine in-depth case studies from
seven employers. It was initially intended to involve a larger number of
employers, but some dropped out because of difficulties in providing the
necessary data. This in itself was an important finding, relating to the
ability of employers in general to understand and manage this important aspect
of their overall performance.
Results
Table 1 gives details of the employers who participated in the study and
gives their absence rates along with the costs of absence, expressed both as a
percentage of salary and cost per employee.
It can be seen that the costs are quite variable, ranging from 1.8 per cent
to 16.4 per cent of salary costs, or from £465 to £2,261 per employee per year.
It is important to note that the range starts at about the level quoted for the
average cost of absence in the CBI study. It was clear that all the employers
significantly underestimated what the total cost would be. In particular, they
had no clear idea of what the indirect and absence management costs were, when
these typically accounted for around 40 per cent of the total.
Contributing factors
A number of factors contribute to the total cost and to the variability
between employers. For example, managers tend to have low levels of absence,
while sales and manual workers have much higher levels. Professional and
technical staff tend to lie somewhere between these two, while the absence
rates for administrative and clerical staff tends to be variable.
Costs tend to be higher in organisations relying heavily on part-time staff.
Younger staff tend to have more spells of short-term absence, while longer-term
absence tends to be more of a problem in older staff. Other factors, such as
the difficulty of the journey into work, may also make a contribution.
A key element in determining the overall cost is the method used by the employer
to replace absent staff. Making no arrangements and requiring other staff to
muddle through on the face of it is the least expensive route, while utilising
formal agency replacements is the most expensive. The approach taken in the
study was not however sufficiently sensitive to take account of the effect each
of these approaches has on the productivity of remaining staff.
It is particularly important to recognise the relative contributions made by
short-term and long-term absence in determining the overall costs of absence.
The distinction between these two types of absence is an arbitrary one which,
for the purpose of this report, was taken as 10 days or less, as opposed to
over 10 days. Despite this arbitrary distinction, it was found that, while short-term
absences contributed to around 80 per cent of the spells of absence, it was
responsible for up to 75 per cent of the total cost.
The important message emerging for employers from this is the need to be
able to identify those people whose absence is likely to become prolonged and
to have effective means of intervening actively and early to prevent this from
happening.
General conclusions
The study revealed a general inability among employers to measure and cost
sickness absence accurately. A total amount ranging from two per cent to 16 per
cent of salary costs was found. This was generally much higher than
participating employers estimated at the outset of the study, with a
particularly poor understanding of the indirect and absence management costs
being revealed.
Long-term sickness absence stands out as an especially important contributor
to the overall costs. Employers need to adopt a much more proactive approach in
the field of early intervention and active absence management to prevent short-term
absences developing into long-term ones.
In UnumProvident we would see income protection insurance as being part of
this package, but one which cannot work without employers taking an active
approach to managing their own absences.
Reference
1. Bevan S, Hayday S (2001) Costing Sickness Absence in the UK, IES Report
382
Dr PD Dewis is Director of Medical Services UnumProvident. At the time of
the study, Stephen Bevan was Associate Director at the Institute for Employment
Studies
Case study: Service sector company
Background:
The company employs over 5,000 people in the UK and its products and services
are prominent in a range of markets. It operates from five main UK locations
including a head office where 1,500 staff work. The majority of staff are in
administrative or clerical roles working on processing or call centre
activities.
The overall sickness absence rate is less than four per cent,
although this masks some variation by staff group and location.
Absence policy and practice: While the company seeks to
apply a consistent approach to absence management, there is a range of
practices in place across the various locations. This makes the collation of
corporate absence statistics very difficult and sometimes unreliable, and has
made the development of a coherent approach to absence management troublesome.
At the time of the study, the company was working on reviewing its absence
policies with a view to clarifying its notification procedures, the role of
line managers, the use of return-to-work interviews, the collation of data on
the causes of absence, the role of employees and the role of OH advice.
The ongoing challenge for the company is to ensure compliance
with the newly defined policies and procedures.
Long-term absences: In the recent past, the company has
focused on the management of short-term absences which account for nearly 85
per cent of spells of absence. The study revealed, however, that long-term
absences were accounting for around 70 per cent of the absence costs. The
company realises more is required to address this issue. It was clear that line
managers were failing to keep in touch with staff who had been absent for long
periods and only a few were, for example, conducting home visits. The HR
manager felt that line managers were generally ignorant of the Income
Protection Insurance scheme and particularly of how it might help in the
rehabilitation of those returning to work following long periods of absence. In
addition there was no ready access to occupational health advice within the
company and there was a general culture within the organisation that viewed
issues such as occupational stress with cynicism.
Employee health and well-being: The company offers a
range of benefits to its employees in this area, although access to them varies
according to location. It offers subsidised membership of leisure clubs and
other exercise facilities. It promotes healthy eating in its restaurants and
offers facilities for cyclists. However, it is aware that these have been developed
in a piecemeal fashion and do not form part of a coherent policy.
An Employee Assistance Programme (EAP) is in place which is
delivered by an external provider. This programme offers advice on a range of
issues via a 24-hour telephone service. The take-up of the service is
monitored, but not its effectiveness.
Absence data: The company keeps computerised records of
staff absence and reports records of this regularly according to location,
frequency and duration. Average days lost and average duration of absence per
employee are also calculated. Absence levels within the company are increasing
according to all main indices. This is attributed to a young workforce, some
organisational change taking place at two of its larger locations and poor adherence
to absence management procedures. Figures 1-3 indicate how absence patterns
vary between occupational groups. They illustrate particularly that absence is
highest among administrative staff and that long-term absence appears to be a
particular problem in this group.
Absence costs: Using data provided by the company, IES
was able to calculate the absence costs for the company for the year 2000
across all staff groups and in aggregate. This is shown in Table 2. Direct
costs were calculated taking into account annual salaries, NIC and pension
contributions and performance bonuses. To this were added the costs of wider
benefits, including company cars, private health care and income protection
insurance premiums. Applying the current absence patterns, these costs amount
to an annual figure of £5.68m, or 3.72 per cent of the salary bill.
The indirect costs were driven by the choices made by the
company in relation to covering for absent employees. In the main this was by
means of internal arrangements, with administrative staff having access to
overtime payments. Agency or temporary staff were only rarely used and no
formal arrangements were made to cover absences in managers or sales staff. As
a result 85 per cent of the indirect costs were attributable to providing
internal cover for absent administrative staff, who, as seen, have the highest
levels of long-term absence. The total indirect costs were £3.13m, or 2.05 per
cent of the salary bill.
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The absence management costs were largely accounted for by line
management as the HR time involved in arranging and supervising cover, tracking
long-term absences and conducting return-to-work interviews. The EAP had an
annual cost of just over £100,000. The total absence management costs were
£3.05m or 1.99 per cent of the total.
Specific issues for the company: Absence levels within
the company were rising and there was evidence of management procedures not
being fully carried out, particularly in those with long-term illness. The
overall cost of absence to the company was nearly £12m and amounts to £1,677
per employee per year. The company was particularly unclear about the size of
the indirect and management costs associated with absence, which accounted for
52.1 per cent of the total. Improved management of long-term absences in
administrative staff was seen as an area with the most potential for
influencing these costs.
