The Total Financial Impact of Employee Absences
Investigating the underlying causes of absences can be complex, but understanding it can also influence strategies for improving productivity.
Organizations should consider not only the direct costs in payroll when calculating the costs of employee absences, but also the impact of indirect costs such as those associated with productivity loss. Your company may not be able to track these costs, or find it very difficult to do so, but given the impact to the bottom line of the business, it is pertinent that organizations track all costs associated with employee absences.
Direct costs, such as wages earned during an employee absence, overtime costs and replacement worker costs, can be easily calculated as a percentage of total payroll.
But employee absences are also linked to other costs that that are harder to measure yet must be accounted for to calculate an accurate total cost of absences: the indirect costs of absences.
Some examples for indirect costs of absences are:
- Possible lower productivity of a replacement worker
- Co-worker productivity loss (like the domino effect when the entire line is slowed while a co-worker is less productive due to added responsibilities during another employee´s absence)
- Supervisor productivity loss (while they are in a back office obtaining replacements or adjusting the workflow and even, in some cases, replacing the co-worker for the day)
- Poor quality of finished goods/services
- Lapse in product delivery/missed deadlines
- Customer service satisfaction level drop
By accurately quantifying the full impact of absenteeism, organizations can better understand the value of solutions that can reduce the costs and lost time from employee absences.
Processes that track the cost of absenteeism must include not only the direct costs of absences, such as salaries and replacement worker costs but also the indirect costs involved, not to mention the cost of reduced employee morale. Indeed, the impact on employee morale is probably one of the most underappreciated costs of employee absences. Absenteeism is clearly a key driver of inadequate staffing and thus may result in rising employee stress levels. Poor management of employee absences can lead to a vicious cycle of rising stress levels that negatively affect employee health and morale and lead to even more days of work missed.
Without accurate tracking of absences and their impact, organizations may not know the real costs associated with their strategies of addressing absenteeism. Addressing the issues that tend to increase the rates of absences rather than relying on temporary help to make up the shortfall can therefore be a real boost to productivity…and the bottom line.