|Title:||United States survey percentages of human resource professionals regarding their estimates of employee absence costs by dollar levels in 2011|
Start of full article - but without data
HR Professionals' Estimates of Costs of Employee Absences
$XXX,XXX to $X million XX% $X million to $X million X% More than $X million X% Don't know XX%
Source: The Missing Piece of Absence Management, Liberty Mutual
Note: Table made from pie chart.
The crazy quilt of leave entitlements drive even the most detail-oriented HR manager bonkers. Applying them is challenging, complicated and vexing. Ever-changing, overlapping federal, state and municipal laws, regulations and court decisions can be confusing, conflicting and open to interpretation. And dealing with irritated supervisors trying to fill staffing gaps that result from employee absences is one of HR professionals' most thankless tasks.
Consider the Family and Medical Leave Act (FMLA) and the intermittent leave it permits. Managers "are very frustrated with workers who they believe are 'playing the game,' " says Sandi Boller, vice president of human resources at St. Louis-based U.S.
Bank, which has XX,XXX employees. "The employee simply has to call the manager and say, 'I'm not coming in.' So long as the doctor provides documentation con-finning the employee's need to take four or five days off per month, there's no further medical documentation required."
And FMLA leave can be taken in small increments. "It could be from three to five minutes," says Cheryl Pasa, SPHR, executive director of People Services at USAA, a San Antonio-based provider of financial products and insurance to members of the U.S. military. "Once they get certified for an FMLA condition, they can be gone whenever they want. And you have no choice; you can't discipline them or consider their absences in a transfer or promotion decision."
C-suite executives, even chief human resource officers, tend to assign absence management low priority, seeing it as encompassing uncontrollable, transactional activities that they must endure as a cost of doing business. "It is a pain ' to deal with, so it tends to get pushed down in the HR hierarchy," says Marcia Carruthers, chief executive officer and president of the Disability Management Employer Coalition in San Diego.
For HR executives such as Loyd Hudson, integrated disability manager of American Electric Power in Columbus, Ohio, such lack of interest represents a lost opportunity to maximize productivity, achieve millions of dollars in savings, and instill fairness and equity in the way employees are treated.
A Powerful Case
More than a decade ago, Hudson began integrating XX separate leave programs into a Recovery Center where HR staff coordinate all leave management from the time an employee is absent until he returns to work. The savings have been impressive.
If you manage such an initiative carefully, "you can cut your absence rate and reduce spending in other ways," Hudson says. "When I started in 1998, workers' comp cost was $XX million. Today with XX,XXX employees, X,XXX more than then, it's only $X.X million." In 1997, workers' comp was X.X percent of payroll; last year it was X.XX percent. Long-term disability was X.X percent in 1997; now it's X.XX percent.
The absence rate on any given day at American Electric Power is X.X percent of staff--"about half of what experts say is the norm," he says. "That means more people are here and contributing than before; I'm not having to pay overtime, over-staff or fill their positions some other way."
U.S. Department of Labor studies show that absences are a substantial and growing expense of doing business, costing employers nationwide perhaps as much as $XXX billion per year.
Labor officials estimate that X percent to X percent of an employer's workforce was absent on any given day in 2010. Other experts project the average daily rate as high as X percent.
Despite the benefits of approaching absence management holistically, many employers aren't doing so. There are chances to achieve savings and be more efficient, but employers aren't taking advantage.
"With limited exceptions, there is no strategy at the employer level," says Kevin Curry, national practice leader of the Reed Group in Westminster, Colo. "Few executives are asking if their systems are efficient, up-to-date technologically or building in meaningful metrics."
Most employers are not tracking absence-related expenses, confirms Cara Bass. "Maybe one in XX HR people know about these costs," says the health and benefits business leader for Mercer, based in Interlachen, Fla. "Every CEO knows that health care costs XX.X percent of payroll, and they pay plenty of attention to managing it. But ask them what unplanned and intermittent absence is costing and they're in the dark. It's a huge number: X.X percent of payroll."
In an April survey conducted by Liberty Mutual Group, XX percent of respondents said they do not know what their organizations' absence-related costs are. Respondents were HR and benefits executives and financial managers representing XXX organizations of all sizes from a cross section of industries and geographic locations.
Even those who claim to know their organizations' costs often underestimate them. Fifty-one percent of the employers claimed to have a handle on costs. Of these, XX percent said they were spending less than $X million per year. In fact, based on direct-cost estimates alone, even small employers surveyed understated their costs by millions.
According to Mercer's Survey on the Total Financial Impact of Employee Absences, employers' direct costs of all absences reached XX.X percent of payroll in 2010. Thus, an employer that has XXX employees and pays an average annual salary and benefits of $XX,XXX would spend $X.X million per year on folks who did not work. Employers with X,XXX employees would spend $XX million.
The direct cost of an absence is the compensation an employee receives for time not worked. It may be full-salary continuation for vacation, sick leave, personal leave or short-term disability, or a separate benefit paid by a disability carrier. If an employee earns $XXX per day and receives a disability benefit of XX percent of pay, for instance, the direct cost is $XXX per day.
There are also indirect costs, especially for unplanned absences: what it costs to continue operations while employees are on leave. Employers may hire temporary or replacement workers, offer overtime, add responsibilities to supervisors, or carry additional workers on the payroll in anticipation of absences. Or they may opt to do nothing--leading perhaps to lower productivity, revenues lost because fewer customers are served or fewer products manufactured.
All organizations incur direct costs linked to absences. The types of indirect costs vary. They depend on how the gaps are filled. HR professionals in some industries, such as health care and retail operations, need to have boots on the floor or butts in the seats, Bass says. They are likely to offer overtime or add temps. Project-based operations, such as consulting and professional services, are more likely to coast and minimize additional costs.
The Mercer survey, similar to others conducted by the Disability Management Employer Coalition and the Integrated Benefits Institute in San Francisco, aggregates all employers and estimates average direct and indirect costs of all categories of absence at about XX percent of payroll. That means a XXX-employee company dedicates $XX.X million per year to dealing with absences, while a X,XXX-employee company spends $XXX million.
Why the Inaction?
Most employers spend more money for people not to work than they think. And the impact goes well beyond lower productivity, lost revenue and decreased customer service. It gets to the heart of employee engagement, particularly if executives think they're treating all leave applicants comparably. Odds are they're not. How come?
Silos impede sharing. When responsibility for absence management is dispersed across departments, turf issues inevitably arise. Payroll, benefits, HR and risk managers all have involvement in the process. People "prefer to work in their comfort zones and not to share their data," says Dan Lyons, vice president and manager of national accounts for Liberty Mutual in Boston.
Plans overlap and meshing them can be problematic, Hudson adds. "Assume, for example, you had an accident in the parking lot at work in West Virginia, you lost fingers on your right hand, and your doctor authorized your claim for workers' compensation. In a siloed world, I would deny the claim because the accident did not happen while you were at work. End of conversation.
"In contrast, if the employee called us at our Recovery Center, we'd say, 'We don't believe you have a workers' comp claim, but here's what we can do for you. We'll start your sick pay and short-term disability pay and look into FMLA eligibility.' Because the injury is serious, he would qualify for XX weeks of FMLA job protection, which would run concurrently. For the employee, it's one-stop shopping and he knows he's getting comprehensive advice."
Metrics are missing or underutilized. Many HR professionals are only beginning to collect the data they need to manage and benchmark leave. Others have the data but are not using it to the fullest extent. "We don't measure some HR-related activities sometimes because it's hard to do so objectively," Hudson says. "That's not true for absence management--the effects of integrated management are pretty easy to assess."
In June, the Society for Human Resource Management surveyed XXX members about their absence management practices. Eighty-two percent said they track absences or plan to track them in the next XX months. Most said the purpose of tracking is driven by the need to be in compliance with state and federal regulations. Less than halftrack indirect costs.
How effective tracking is in ensuring compliance remains uncertain. In 2008, the year for which the most recent statistics are available, the U.S. Labor Department's Wage and Hour Division reported that XX percent of the X,XXX complaints filed by employees for violation of the FMLA were valid. Back wages for the workers totaled $X.X million.
Employers are gun-shy. When it comes to approving leave, employers are concerned about the potential costs of litigation when denials are challenged. "It's only a few days off," they reason. "Is it really worth a protracted legal fight?"
Paul DeCamp, a partner at Jackson Lewis LLP in Reston, Va., and leader of its Wage and Hour Practice Group, says employers grumble but usually give in. "Where you have these borderline issues, the dollar value is usually small, so the employer rolls over. The worker calls in, says, 'I think I have the flu.' If the supervisor says, 'No, you have to come to work,' he has to do the FMLA paperwork and refer them to HR. When HR gets the call, she thinks about calling the lawyer to figure out whether job-protected leave can be denied. Especially if the leave is unpaid, it's easier to let it slide.
"Any time workers can decide for themselves when they can't work, the employer is in a tough position," DeCamp continues. "Everyone accepts serious conditions under the FMLA like chemotherapy. But as conditions get closer and closer to the line"--such as chronic pain, headaches and severe colds--"they're more difficult to verify and there's more room for worker abuse. There's a real tension between wanting the employer to have a chance to verify versus the pushback from the doctor who says, 'I've already said this person has migraines, and I don't need to repeat my diagnosis.' "
So how can HR managers best deal with absences and manage their costs?
Review internal policies. Look at your policies carefully. Are your leave policies serving you optimally? Look to best practices for effective leave strategies that you can control. For instance, employers that account for sick leave try to minimize the impact by:
* Requiring a doctor's note after a certain number of days.
* Requiring review by an independent physician.
* Accurately monitoring leave days taken, in a timely manner.
Most employers want to know when someone will be absent so they can consider coverage and check eligibility against the menu of mandated leaves that may apply. By qualifying an employee for a particular kind of leave, the employer may save money through insurance reimbursements and may track the days of eligibility each person has for a given leave such as FMLA.
Tear down silos. If you do not have integrated absence management, set up monthly meetings with risk, benefits, HR and safety son professionals. You'll find a lot of the information you need to manage absences in different buckets.