Organisations are increasingly focused on ensuring that their risk management strategies are robust and effective. But many fail to include managing employee sickness absence as an essential risk control activity. The CBI report Absence minded: Absence and labour turnover 2006 estimates that the cost of absence to UK employers was £13.2bn in 2005, with an average absence of 6.6 days per employee. This suggests that employee absence is high frequency risk for many organisations and one that requires attention.
Results of a 2006 Marsh employer benchmarking survey, Why Employers' Liability Only Scratches the Surface, confirm that many organisations have opportunities to develop a more coordinated approach to this issue. Respondents did not feel confident that their organisations had accurately identified the cost of sickness absence (58%) or the cost of replacement labour due to sickness absence (72%). This is in keeping with the 2006 Chartered Institute of Personnel and Development (CIPD) Absence Management survey, which showed that less than half of employers measured the cost of absence. Within most organisations, these are significant costs. According to the CIPD, the average cost of absence per employee is £601 per year.
Reducing the number of absence episodes and the average length of each episode represents a significant opportunity for most employers to achieve bottom line savings. Marsh's survey reflected this, with 73% of respondents indicating that accurately identifying the cost of sickness absence would make the biggest difference to their organisation in managing employee risks.
Most organisations underestimate the cost of sickness absence. This is for two primary reasons. Firstly, many believe that they measure sickness absence accurately, but a significant number of absences slip through the net, for example, when employees report to work but leave later in the day because they are unwell. Second, most organisations underestimate or fail to estimate the indirect costs of absence, such as lost production, loss of key employee skills, and customer dissatisfaction. These indirect costs may be greater than the direct costs.
How successful is your organisation in managing absence? If absence levels are in line with the national average, losses for every 1,000 employees could be in the region of £700,000 a year. So, assessing performance is critical to reducing costs and improving productivity.
The first step to improving your organisation's absence rate is to assess the existing level of absence and the processes that are in place for managing it. If an effective system for recording absence and its causes is in place, it will also be possible to evaluate the current costs, any trends and 'hot spots' within the organisation.
This assessment can be used to benchmark performance against an average industry profile and the results achieved by best practice. This allows a focused approach to be directed to areas where intervention will deliver the most cost-effective solutions.
Return on investment
Ensuring that cost savings justify the investment costs of supporting an absence management programme is an essential consideration.
The most obvious cost of absence is the salary cost of absent employees. If the absence rate in your organisation is at the typical level of 3-4%, then the salary cost of absence broadly represents 3-4% of payroll. There are also significant indirect costs, such as:
- recruiting and training temporary staff
- the loss of the absent individual's contribution to productivity
- management costs incurred in managing an absence
- reduced customer satisfaction.
These indirect costs can be at least as much as the direct costs, although it may be difficult to quantify this. A simple absence cost/benefit analysis, excluding indirect costs, is shown below:
In Marsh's experience, implementing a targeted programme to improve attendance can yield significant rewards, with reductions in absence rates of at least 20% during the first year.
Organisations are increasingly incorporating their absence management strategy into an overarching wellness or employee health and well-being strategy. This typically has three aims: to promote wellness, improve attendance, and support employees. Achievement of these should enable the organisation to maximise employee productivity and demonstrate return on investment. While HR may take the lead in developing and managing the strategy, input from senior and operational managers is necessary to gain early buy-in and develop positive attitudes to investment and support for employee health.
Investment should be available to support achievement of the aims of the strategy, such as access to private medical care, health checks, counselling, physiotherapy and employee assistance programmes. While the absence policy is important in underpinning the strategy, policies that support employees in balancing personal commitments with the demands of working life are also essential.
Once the strategy has been developed, formal briefing sessions should be used to ensure that managers at all levels understand their role in successful implementation.
Key measures to support the strategy
A framework of support is needed to ensure the success of the absence management component of the wellness strategy. This is where key issues arising from the assessment are addressed. Eight of the most commonly used and most effective management actions relate to the following areas:
Support from the top: It is vital for senior managers to take an active interest in managing attendance. In organisations where managing attendance and promoting employee health are seen as the responsibility of line managers and HR alone, the strategy is likely to fail. Progress in reducing absence should be an HR metric that is reported to the board.
Clear policies and procedures: Roles and responsibilities of managers, as well as employees, should be spelled out. Employees should anticipate that the organisation will actively intervene in both short-term and long-term absences. And managers should ensure that procedures are implemented fairly and consistently. Disciplinary and capability procedures should be in place to deal with persistent or long-term absence.
Record absence accurately and make best use of data: The use of absence data as a management tool is central to an effective programme, so data has to be accurate. Even in situations where an organisation considered that it had good absence data, Marsh's experience has shown that it was frequently either inaccurate, could not be used to analyse the causes of absence, or was not provided to line managers in a format that highlighted problem areas and assisted them in effective management.
Training for managers: Often managers feel reluctant to intervene in sensitive areas involving personnel and medical issues. However, it is essential to train them to take more responsibility for employees' absence (and in promoting wellness). In Marsh's experience, attendance management training is a highly effective way of improving managers' skills, knowledge and confidence in this area, with absence levels reducing significantly as a consequence.
Contact with absent employees: Many employees who take time off sick lose touch with the organisation during this period. They can become disassociated and experience feelings of isolation and exclusion. Barriers against returning to employment start to emerge. Action needs to be taken to counter this. Rather than just hoping that an absent employee will return to work, contact with that individual should be maintained throughout the absence period. Both employer and employee should discuss options to support a speedy return to work. It is important for absent employees to feel that they are still part of the corporate culture so that they can return to the workplace quickly. Return to work discussions, following all absence episodes, are also effective in ensuring that medical and other issues are addressed appropriately.
Access to professional medical advice: Occupational health expertise is essential in providing advice to managers on fitness to work and underlying medical issues that may affect the attendance of employees. Early referral of those who are at risk of long-term absences is useful in establishing what the organisation can do to expedite return to work.
Adopting a case management approach: The likelihood of an employee becoming a long-term absentee can be reduced if, after an agreed period of absence, a formal case management approach is adopted. Case management should involve HR and medical professionals, as well as the line manager. The purpose of this exercise is to review both temporary and permanent actions to assist the employee in returning to work. These may include paying for private healthcare, enabling the employee to change their job role to match their capabilities during a rehabilitation period, or enabling employees to work from home. This approach addresses barriers to return to work when they are likely to be most manageable and before the absence costs escalate.
Promoting healthy lifestyles: Keeping employees fit and at work is clearly an important aspect of absence management. Awareness campaigns and practical support, such as healthy eating, support to stop smoking and subsidised gym memberships, encourage employees to manage their own health and can bring a positive culture of attendance to the organisation.
In summary, a robust and consistent approach to employee absence and wider wellness issues is an essential component of controlling employee risks. A coordinated strategy and management action can yield bottom line savings, and increase both productivity and employee engagement with the organisation.
Barbara Dahill is a principal consultant at Marsh, and a specialist in human capital risk. For more information on Marsh's absence management services, email: firstname.lastname@example.org
ASSESSING THE PROGRAMME FOR MANAGING ABSENCE
An analysis of your organisation's absence management programme will identify strengths and weaknesses and will enable a prioritised action plan to be developed.
Strategy Is your absence management programme focused at a high level? What are its targets and objectives?
Policy How effective is your policy in setting out procedures to follow in the event of absence? How do you communicate your programme to all managers and employees?
Recording and analysis What processes are in place to report and measure absence throughout your entire organisation?
Active intervention How do you actively manage absence to reduce duration and cost?
Return to work Are phased returns to work encouraged so that employees are back at work at the earliest opportunity? Do you ensure maximum productivity during recovery? Are you complying with employment legislation?
Management training Do your managers have the skills and confidence to implement procedures and deal with difficult interpersonal issues?
Health education Are employees encouraged to take an active role in looking after their own health issues?
Culture Does your organisation's culture support a positive attitude to attendance, or do employees feel entitled to non genuine use of sick leave?
Accountability Who 'owns' absence management? Does a specific person within your organisation have responsibility for it? Are managers accountable for absence in their areas, or do they consider absence an HR issue?
Stress Is there a policy and procedures for managing work stress issues - an increasing cause of absence?