Myth: Sick pay is the only absence cost

Despite the fact that you may not have to pay the employee when they are off, there are other costs. When an employee is absent direct and indirect costs are incurred to the business.

All absence carries direct and indirect costs

The best way to think about how much an absence costs your company, is to follow the Labour Relations Agency’s advice for focussing on how your company functions when someone is away:

• Do you have to hire temporary staff?
• Are deadlines missed?
• Do customer satisfaction rates suffer if there is no one at all or no one sufficiently trained to cover the absence period?
• Do your other staff members get upset at the increased workload?

We could also add to this list:

• Do your managers spend lots of time finding replacement staff?
• Do your supervisors have to step in when no cover can be found?
• Are penalties paid for not delivering according to your SLAs e.g. for late deliveries, poor quality of work, slow response times or shortage of staff?
• Do your long term absentees claim back missed annual leave?

If you answer ‘yes’ to any of the above questions, then absence costs your business money. Even if contractual sick pay is not part of the employees’ benefit package.

Cost of replacement staff

Temporary staff usually come at a premium, costing more per hour than permanent staff. Further, agency workers’ lack of experience can mean that productivity will drop. By the time the ‘temps’ start getting the hang of the job, they’re sent along to the next assignment to start all over again. They or other colleagues will not necessarily know the status of ongoing tasks or projects. Many of these may have to wait until the permanent staff member is back at work which may lead to deadlines being missed.

Cost to customer satisfaction

Customers, who are used to dealing with one person will be inconvenienced by having to take their order, issue or query to someone new who might not know their needs or the details of their contract or previous agreement. It can take time before anyone picks up an email sent to an absent employee. In the meantime, the customer is left wondering why they have been forgotten.

Burden to coworkers

Not only does absence inconvenience customers, but often other staff members have to pick up extra work whilst someone in the team is off. Their own tasks may well suffer as they try to juggle several projects at the same time. The stress of a growing workload can lead to a bad customer experience if tempers are frayed. In extreme cases, a domino-effect of further absences within the team accumulates.

Cost of management time

Many employers appreciate the cost of replacement staff. Problems arise when orders can’t be delivered on time or dealines go unfulfilled. However, the time spent finding cover is often overlooked. This is a significant cost to an employer, though, because usually it is the managerial or supervisory staff who need to spend a significant part of their day re-writing the roster and ringing around to find a suitable replacement. Not to mention the time spent adjusting payroll. Overpayments to absentees resulting from laborious or manual sick pau procedures is often a hidden cost of absence. The managers’ time also comes at a premium and so this element in the cost of absence should not be undermined.

Accruing annual leave during absence

Absent employees continue to accrue annual leave whilst off sick. This means that absentees can take paid leave during their period of sickness. Even if they are covered by a medical certificate, or claim the accrued annual leave upon their return to work. In cases of long term absence this can amount to a significant period of paid leave.

Calculate your direct cost of absence

To properly understand the cost of absence to your business, you need to take into consideration the specific factors of your operating environment. A good starting point is Honeydew’s ‘Cost per absence day’ model for direct costs which you can see as part of our absence cost calculator. Indirect costs are harder to quantify but they usually amount to at least the same total as direct costs do. Our indirect costs infographic gives an example of how much time a manager of a 10-person team spends on absence-related tasks.