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Cost of Sick Employees: A Guide to the Financial Impact of Absenteeism

This is no secret: businesses depend on their workforce for success. When workers are present and healthy, operations run smoothly. However, when employee absence plagues a business, it suffers. Ultimately a company’s bottom line will reflect this productivity loss.

Absenteeism is when an employee misses work beyond what the employer expects. Understanding the rate of absenteeism is a key measure to assessing the health of any business. By looking at the reasons why employees miss work, business owners and facilities managers can plan ways to improve the health and well-being of their workforce.

Rates of employee absenteeism due to illness or injury in the workplace

Employees miss work for a variety of reasons. In fact, the Integrated Benefits Institute estimates that the US economy loses $227 billion every year from productivity loss.

Of the many reasons for absenteeism, two of the most common reasons why employees miss work are injury or illness. The US Bureau of Labor Statistics estimates that 2.8 million workdays are lost each year due to absences from sickness and injuries.

The most common illnesses

Companies should expect a 1.5 percent absenteeism rate—three to four paid sick days per year for each employee—among staff. Paid leave to recover from the common cold or the flu is necessary. However, it is the presence of chronic illness that can lead to chronic absenteeism and, consequently, a greater cost in paid sick days.

A study published in the Journal of Occupational and Environmental Medicine listed diabetes, cancer, heart disease, hypertension, lung disease, and stroke as the most common chronic illnesses. The study also mentions arthritis/rheumatism as the most common disability that leads to unplanned absenteeism. The Gallup-Sharecare Well-Being Index estimates that these conditions amount to $84 billion per year in lost productivity.

The most common injuries

Another factor affecting employee absence is injury. The vast majority—as much as 84 percent, according to the National Safety Council—of injuries come as a result of overexertion, an accidental slip or fall, or injurious contact with objects or equipment.

While not every business is prone to worker accidents, even office settings contribute to chronic injuries. The two most common chronic ailments are back and neck pain, which can result from long days bent over a desk.

Other common risk factors

Aside from illness or injury, employers should also consider the many other risk factors that could lead to an absent employee. In his report Promoting Employee Well-Being, Dr. David Chenoweth lists a low intake of fruits and vegetables as the leading condition plaguing 76.6 percent of surveyed employees. Obesity was the next highest risk factor, while physical inactivity, high stress, and high cholesterol rounded out the top five.

Monetary disability burden resulting from illnesses in the workplace

The workforce solutions company Circadian estimates that absenteeism costs a company $2,660 a year for each hourly worker. Compare this with the $225.8 billion that the Centers for Disease Control and Prevention (CDC) reports US employers lose each year to lost productivity, and you will understand why companies benefit from improving workplace safety measures and maintaining a clean work environment.

Direct cost

The money companies lose to absenteeism comes directly from several sources. First, a business loses money by paying wages to the absent employee. Second, the business must pay wages to a temporary or substitute worker or pay another staff member for overtime.

Indirect cost

Perhaps more detrimental to a business’s bottom line are the indirect costs that emerge from absenteeism. While illness and injury obviously result in lost productivity, the quality of goods and services declines when a company is understaffed. With the workforce stretched thin, output suffers.

Not only do products and services deteriorate, but also managers must take time away from their work to find and train replacements as well as adjust employee and operations schedules. Furthermore, safety can become an issue when managers ask employees to take on more work to cover for an absent coworker.

Consequently, all this filling in can lower morale among those doing the extra work, especially when covering for someone who is chronically absent. Over time, this can strain and stress your workforce and weaken employee retention, which will, of course, only compound your organization’s lost productivity.

How to calculate the costs of poor health in your workplace

Absenteeism has so much potential for negatively affecting your bottom line. Calculating absenteeism can give you another data point for determining your organization’s overall health.

What you need to calculate employee absenteeism

First, gather your employee absence data. For each employee, you need the number of days they missed, the dates of their absences, and the number of available workdays for the period (month, quarter, year) you are analyzing.

Measuring the absenteeism of a single employee

Take the number of unexcused absences and divide that number by the number of possible workdays. Now multiply that by 100:

(number of absences ÷ number of workdays) × 100 = absenteeism rate

An example would be an employee who missed 8 days during the first 90-day quarter. Divide 8 by 90 to get 0.089. Multiply 0.089 by 100 to get an absenteeism rate of 8.9 percent, which is well above the acceptable 1.5 percent.

Once you’ve figured the absenteeism rate for each employee, you can estimate the cost of these absences. And you can use this same formula to calculate the absenteeism rate of a particular department, group, or shift in your company, giving you more information to strategize against absenteeism.

What this rate tells you

Since employers know employees become ill from time to time, the 1.5 percent marker is an indicator for further consideration. If the absence rate of an employee is significantly higher, the employer should assume that the employee is facing a challenge beyond a simple cold.

Stress, burnout, lack of motivation, or even a conflict with a coworker may be pushing this worker to miss more time. Addressing this situation is necessary to diminish the negative effect it may have on the company.

Conversely, when the absenteeism rate is below 1.5 percent, this can also signal that management needs to intervene. Unless your company has amazingly healthy employees, a rate below 1.5 percent may suggest that a sick employee is on the job—a situation referred to as “presenteeism.” Presenteeism can indicate that employees feel pressured to work. And this can lead to burnout and low job satisfaction as well.

Employees who come to work sick not only risk passing on their illness to others but also are not nearly as productive as they are when well. This can lead to poor work performance, another indirect drain on the bottom line.

The absenteeism rate of employees can differ by departments, teams, or seasons. Seeing the correlation between rates and the select groups or times of year helps employers to discover patterns and/or cycles and plan effective interventions.

Consider the cold and flu season: During the winter months, people spread pathogenic microorganisms more readily. This is the time to implement an additional round of disinfecting to the daily cleaning routine in your facility. Additional measures could include implementing a policy for more regular handwashing.

As mental health also wanes in the winter, managers may prevent additional absenteeism by saving more work-heavy projects for the spring, when employees feel more upbeat. Observing trends in absenteeism rates helps to give employers a chance to improve their organization’s overall well-being.

Importance of maintaining employee health for an efficient and profitable workplace

When employees are safe and healthy, the quality of the work they do improves and has the greatest chance of leading to profitability. This holds true for business entities of all sizes.

Employee morale suffers when workers are continually asked to cover for absent colleagues. When morale and motivation are low, attention to detail wanes and employees are more likely to burn out. Furthermore, teamwork declines as the likelihood that someone else may decide not to show up tomorrow increases. It can be a detrimental cycle.

With so many billions lost each year to illness and injury, companies that emphasize providing a clean and safe facility for their employees have a much greater chance of limiting the economic cost of sickness in their organization. Evaluating your company’s employee absenteeism rate can help you see the areas where and times when you can make the most of your attention.

The COVID-19 pandemic has shown us the simple ways in which we can limit spreading an infectious disease. Handwashing and social distancing have become common practice. These easy-to-implement strategies are but a few of the ways employers can work to limit lost productivity due to illness. There are many, many more.

Once you have calculated your organization’s employee absenteeism rates and determined their causes, evaluate your facility’s cleaning plan to ensure you’re providing the healthiest work environment possible. Contact Spruce Industries to help you understand and order the cleaning products that will safeguard your organization’s health.

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