What is the cost of employee absenteeism for my business?
Employee absenteeism can have a very negative impact on a business’s profitability. It causes several costs that, when added up, create in some cases significant losses. The key to dealing with this problem is to understand how to calculate the cost of employee absenteeism for your company, and what actions to take in order to reduce it.
What is the cost of employee absenteeism?
The answer depends on the industry you work in. The occupations most affected by employee absenteeism are the professional sectors ($24.2 billion per year), as well as the managers and executives ($15.7 billion). Physicians and farmers are among the least impacted professions (respectively $0.25 and 0.16 billion).
In the US, the cost of employee absenteeism amounts to $ 1,685 per employee each year. But the COVID-19 pandemic has caused an increase in absenteeism that is most likely to make that number rise. According to the Integrated Benefits Institute, employee absenteeism caused by the coronavirus could cost more than $23 billion to employers.
How do I calculate the cost of absenteeism?
That’s a tricky question. Indeed, employee absenteeism causes many small costs that you must take into account in order to get an accurate figure. These costs include for instance:
- The loss of production;
- The quality loss;
- The time spent by the supervisor to deal with the absence;
- The time spent by the HR team to deal with the absence;
- The hiring and training of temporary staff;
- The cost of external agencies providing support regarding absenteeism.
If all you need is a rough approximation of what employee absenteeism is costing your business, then you may use this simple trick: multiply the daily wage of the employee by two and you’ll get a good idea of the cost of absenteeism.
If, however, you need a more accurate number, then you might want to use Houtzagers’s formula, which will give you the total cost of absenteeism per employee (ACE) over a defined period of time. Here’s the formula:
ACE = (LH x (WHP + EBC) + SLH x (SHP + SBC) + OC ) / E
This formula takes into account various costs, namely:
- LH = Lost Hours. The total number of employee hours lost due to absenteeism for the defined period;
- WHP = Weighted Hourly Pay. The weighted average hourly pay for the company’s various occupational groups;
- EBC = Employee Benefit Cost. The cost of employee benefits per hour and per employee, which amounts to 35% of WHP;
- SLH = Supervisor Lost Hours. The total number of hours lost by supervisors due to dealing with absenteeism;
- SHP = Supervisor Hourly Pay. The average hourly pay for supervisors;
- SBC = Supervisor Benefit Cost. The cost of supervisor benefits per hour and per supervisor;
- OC = Other Costs. An estimation of additional costs among those listed above;
- E = Employees. The total number of employees within the company.
How to reduce the cost of employee absenteeism?
Now that you know how much employee absenteeism is costing you, you’re probably asking yourself: can I reduce those costs? And if so, how? Well, the first step to take is to measure your company’s employee absenteeism rate. This will allow you to determine if your business is within your industry’s average when it comes to employee absenteeism.
If it isn’t, there are several strategies you can implement in order to decrease employee absenteeism, thus reducing the costs linked to it. For example, you can an time tracking app that provides an employee panel. That way, your employees can easily report their activity, while you can keep track of their absences and access various reports.
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