Full Cost of Employee Absence Equals 36 Percent of Payroll, According to New Mercer Study Sponsored by Kronos®

Unplanned absences cost organizations the equivalent of nine percent of their base payroll on average more than half the cost of healthcare benefits

ORLANDO, Fla.--()--According to a new survey of 455 employers conducted by human resource consulting firm Mercer and sponsored by Kronos® Incorporated, employee absence costs organizations the equivalent of 36 percent of their base payroll on average. This total includes both planned absences (such as vacations and holidays), as well as unplanned absences (such as sick days and disability leaves). Unplanned employee absences cost organizations the equivalent of nine percent of their base payroll on average, more than half the cost of healthcare benefits, measured at 15.4 percent of payroll in Mercers 2007 National Survey of Employer-Sponsored Health Plans.

This study is the first large-scale initiative to attempt to identify the total costs of absence, including both the direct costs wages paid to employees while absent and the indirect costs lost productivity and replacement costs of workers.

Unplanned incidental absences, such as casual sick days, result in the highest net lost productivity per day work that is missed or postponed by not being covered by others. Survey respondents estimate that when employees are out on unplanned absences, they sustain a loss in productivity of 21 percent, compared to just 15 percent for planned absences.

The cost of absenteeism is often misunderstood, seen as un-measurable, or dismissed as negligible, said Toni Kellam, absence management consultant at Kronos. While most other expenses for an organization have clearly defined costs, employee absence is loosely tracked, and the tracking is not thorough enough to reveal the full costs. What this survey shows is that employers can control labor costs and increase productivity by better tracking and controlling their absence-related expenses and minimizing unplanned absences.

What does this mean in terms of actual dollars? Consider a sample employer with:

1,000 Employees

$50,000 Average annual salary per employee

$50,000,000 Annual base payroll

 

They spend $4,500,000 annually on unplanned incidental and extended employee absences (9 percent of payroll)

Employers tend to focus their energies on managing healthcare costs because the dollars are easily measured, said George Faulkner, principal and absence management specialist at Mercer. But this new survey suggests that absences cost employers more than half the cost of healthcare. This is a startling number and a call to action for organizations to get a better handle on this often unchecked cost.

A sample of other key findings from the study include:

  • Respondents estimate that the total costs for planned absences such as vacations and holidays are equal to an average of 27 percent of base payroll. This figure includes wages, replacement costs, and lost productivity.
  • To help manage unplanned absences, 36 percent of participants have Paid Time Off (PTO) banks that combine vacation and sick days for nonunion hourly workers, and 35 percent have them for exempt employees. By contrast, only 29 percent have PTO banks for nonexempt salaried employees and 28 percent for union hourly employees.
  • Fourteen percent of employers provide no paid sick time for incidental absences for nonunion hourly workers and eight percent provide none for their union hourly workers.
  • The number of incidental unplanned absence days per employee, per year averaged 5.3 days across all employee classes, and ranged from 3.8 for exempts, to 4.9 for nonexempt salaried, to 5.6 for nonunion hourly, and 6.7 for union hourly.

To download highlights of The Total Financial Impact of Employee Absences survey, please visit: www.kronos.com/AbsenceManagement.

This announcement was made from KronosWorks, the industrys largest conference dedicated to exchanging ideas on how to effectively manage the workforce. KronosWorks is taking place this week in Orlando.

About the survey

This survey was sponsored by Kronos Incorporated and conducted online in the summer of 2008. Respondents total 455 organizations in all major industry segments, sizes, and regions throughout the U.S. They have an average size of 5,022 benefits-eligible U.S. employees.

About Kronos Incorporated

Kronos Incorporated empowers organizations around the world to effectively manage their workforce. At Kronos, we are experts who are solely focused on delivering software and services that enable organizations to reduce costs, increase productivity, improve employee satisfaction, and ultimately enhance the level of service they provide. Kronos serves customers in more than 60 countries through its network of offices, subsidiaries, and distributors. Widely recognized as a market and thought leader in managing the workforce, Kronos has unrivaled reach with more than 30 million people using a Kronos solution every day. Learn more about Kronos at www.kronos.com.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. It is a leader in benefit outsourcing. Mercers investment services include investment consulting and multi-manager investment management. Mercers 18,000 employees are based in more than 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago, and London stock exchanges. For more information, visit www.mercer.com.

© 2008 Kronos Incorporated. Kronos and the Kronos logo are registered trademarks of Kronos Incorporated or a related company. All other product and company names mentioned are used for identification purposes only and may be trademarks of their respective owners.

Contacts

Kronos Incorporated
Laura Souza, 978-947-4777
laura.souza@kronos.com
or
Mercer
Stephanie Poe, 202-331-5210
stephanie.poe@mercer.com

Contacts

Kronos Incorporated
Laura Souza, 978-947-4777
laura.souza@kronos.com
or
Mercer
Stephanie Poe, 202-331-5210
stephanie.poe@mercer.com