Payroll, benefits, training, and administrative costs are some of the top expenses on a company’s financial statement. When it comes time to managing controllable, internal expenses, managers will quickly point to the cost of human capital as a critical lever in determining expense budgets and profitability. What is alarming is that, according to a 2014 SHRM/Kronos
Costs add up
Absenteeism costs can be categorized in two distinct
categories – direct costs, and indirect costs.
Direct costs are easily quantified, and examples include
payroll costs, overtime costs, and replacement costs. Many employees use sick time, vacation time,
and PTO – most of which is earned, and represents a liability for the business
on the balance sheet. That’s a
predictable expense. What are not as
predictable are overtime and/or replacement costs, specifically what it costs
to fill the shoes of the absent employee – somebody has to pick up the slack.
Indirect costs are not quite as well defined or
predictable. Most revolve around
productivity. Does the replacement
worker have the training to do the job as well as the absent employee? If a co-worker is logging double-duty, how
does that impact their own job performance?
Is a supervisor filling in for the absent employee? In all cases, one must be concerned of the
opportunity costs involved with pulling others offline to make up productivity
losses because of an absence. Further,
increased workloads for other employees can increase stress, disrupt the rhythm
of others, and can hurt employee morale.
Not all leaves are
the same
Some leaves simply cost a business more than others. As previously noted, predictable (and budgeted)
leaves such as vacation, sick pay, and PTO leaves are relatively
straightforward. Businesses should be
equipped to be able to handle an employee’s hard-earned time off. What are less predictable, and ultimately
more expensive and difficult for a business to manage are unplanned and/or
extended absences. These absences would
include disability and FMLA situations.
Not surprisingly, many of the unplanned absences took place concurrent
with holidays, weekends, and special events.
Unplanned leaves cost
more than you think
Unplanned leaves – those that could potentially last weeks,
months, or an indefinite period of time – are tricky for an employer to predict
and administer. There are three primary
cost drivers for unplanned leave – the cost of administration, the cost of
staying current on applicable regulations, and the ultimate cost of
non-compliance.
Whether consistent or intermittent, tracking hours, days,
and weeks of absences is difficult to manage.
Primary administrative tasks associated with absenteeism include
processing, reviewing, and communicating decisions with employees. The number of people involved varies, but the
SHRM survey respondents indicated a widespread number of people reporting and
administering leaves – including HR, supervisors, and the employees
themselves. How an employer tracks leave
is another story. Approximately 2/3 of
the SHRM survey respondents indicated they used some sort of automated system
to track absences, but the other third uses home-grown systems, paper forms, or
worksheets to track leaves. The bottom
line is that leave administration involves a lot of people, and costs companies
a significant amount of time and money.
For the 1/3 of employers using a home-made system, they are likely
missing out some important compliance and consistency variables, which could
ultimately cost them far more than they expect.
FMLA regulations are complex, and reviewing leave requests
can be difficult. Without adequate and
up-to-date knowledge of the regulations, employers risk not being
compliant. Nobody wants to face a
lawsuit filed by an employee, or the Department of Labor. In many cases, an employer may choose to err
on the side of caution – approving leaves that may not necessarily be eligible
– to avoid a potential (and messy) denial, or worse, litigation. Companies with counsel and support are in a
better position to make informed decisions – and that often translates to
reduced absenteeism time off and higher productivity. The cost of falling out of compliance –
whether it be not following regulations, or making inconsistent and impartial
decisions – can be huge. The EEOC
estimates that the average cost of an employee’s successful lawsuit for
wrongful termination related to FMLA is $250,000 – and that does not even
include legal costs.
Controlling the costs
of absenteeism
Absenteeism, for the most part, is a cost of doing
business. Just like any other business
expense, managing costs is the key to success.
What can a business do keep costs under control?
1.
Ensure
that time-away policies are established and documented. A written policy ensures fair and
impartial decisions for eligibility, time off, sick pay, and extended leaves.
2.
Track and
monitor employee absences. Tracking
hours worked, accruals, PTO requests, and PTO approvals can become a difficult
if a consistent process is not in place.
There are numerous software and third-party solutions that can help
employers manage this important task.
3.
Provide
disability management programs that help employees get back to work. A managed rehabilitation plan will
provide resources and incentives to help employees get back to work faster. Investing in a group disability program (STD
and/or LTD) can provide ROI in absenteeism costs, and help employers attract
and retain top talent.
4.
Consider
outsourcing FMLA and ADA administration.
Few companies have the resources available to keep tabs on the
evolving regulatory and labor law environment.
Outsourcing FMLA is relatively inexpensive, ensures compliance, and
allows HR to focus on growing the business.
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articles and updates at http://runningatthespeedofbusiness.blogspot.com/ and
http://businessaccelerated.blogspot.com/
