The CBI says that levels of absence from work in the UK fell from 3.1% in 2001 to 2.9% in 2002. Another survey from the Work Foundation shows that absence rates have increased from 2.9% to 4.1% over the last year. The latest research by the CIPD shows absence rates falling from 4.4% in 2002 to 3.9% in 2003.
If absence rates are hard to agree on, the associated costs are even more difficult. The CBI quotes an average cost per employee of £476; the CIPD calculates the cost per employee to be £467.
What the CIPD and the Work Foundation do agree on, however, is that fewer than half of UK companies monitor the cost of sickness absence. A quarter of them do not even record their sickness absence and, of those that do, only half make any effort to control it. If no one can agree on either the rates or costs of absence, why should you bother to record it? Organisations that do take steps to manage sickness absence clearly perceive it to be an HR issue, but the impact on their overall business goes further.
The reasons for organisations to control absence rates are complex and interrelated. The most obvious is cost. When employees are at work, productivity is maintained, customer service is unaffected, and there are few costs arising from health benefit programmes. This suggests that up to a point organisations are happy to measure a decrease in the level of absence without placing specific emphasis on reducing cost. But for many companies there has often been no material reduction in cost, because of the impact of long-term absences. Where absence is recorded, 56% of days lost are due to long-term absences, and these account for 70% of the total cost. (Work Foundation).
It is my own company's experience that the benefit of a reduction in costs following a reduction in absence is an assumed one rather than a proven one. That said, cost reduction is often a motivator for change and in cases where absence figures are extremely high, it is fair to assume that a substantial reduction in rates will mean a reduction in costs.
Those focusing on cost reduction often find it easiest to measure the direct costs of absence, but the indirect costs could increase the overall total cost by a further 95% (or indeed by up to 300% in the largest estimates). The table summarises the different components of absence cost, and it can be seen that, whatever the relativities of direct to indirect costs, there should be productivity gains to be achieved by a reduction in absence.
Costs of absence
The difficulty in justifying this as a reason for recording absence is that absence-related productivity improvements are difficult to prove; they depend on a team's response to absence overall. However, organisations need to take into account the risks arising from losing the goodwill of employees who are required to cover for absent colleagues and the subsequent reduction in morale.
With society becoming more litigious, organisations need to have an absence policy to ensure that, should they wish to dismiss an employee, or should an employee seek redress via the courts, the absence policy has been followed. The policy will also help in ensuring that a precedent has not been set in another case. For example, an organisation may have to prove to the courts that they have sufficient evidence to have warranted dismissal. Organisations also have to be aware of the Disability Discrimination Act, and ensure that should an employee require a change in their working environment all the options have been considered prior to dismissal. A written absence policy is therefore of paramount importance, as is documented evidence of its implementation.
For many businesses the cost of long term disability (LTD) and IHER claims are increasing, especially as a result of the increase in stress related illness. For organisations that have LTD insurance policies in place, the impact of a claim could significantly increase the cost of future premiums. Historically an organisation with 1,500 employees might expect two claims per 1,000 employees with, perhaps, an associated cost of 0.8 per 1,000 covered. Given an increase in psychological claims of approaching 100% in the last five years, the implications for those cost levels are clear. It also means that, in order to control rates, LTD insurers are also requiring organisations to inform them after five to eight weeks absence of any potential LTD claim, in order for the LTD insurer to intervene at an earlier stage in the illness. Employers without an infrastructure for recording absence may not be able to take advantage of this cost-saving opportunity.
An employee may be absent from work for reasons other than sickness, such as problems unconnected with the work place, stress relating to their current job, disciplinary action or personal issues. Discussing the cause of their absence with employees, thereby alleviating the issue, will result in a reduction in the absence rate. However, organisations need to be able to pinpoint problem cases, and data is key to this process.
Processes and providers
It is one thing to record what is happening, another to implement processes that have a material impact on absence rates. Ideally, all organisations should have a formal written absence policy covering notification, sick pay, disciplinary and return to work procedures, but many are hamstrung by a lack of adequate IT systems, the time to record absence accurately and a sufficiently competent management cadre to carry out return to work interviews.
If an organisation is unable to record and monitor absence within the HR department, there are various other options that can be implemented. If an organisation has an in-house occupational health function, the HR function may be able to work closely with them. Where there is no such function, or the department does not have the resource to monitor absence, the function can be outsourced. There are several firms who offer occupational health advice. Where an organisation is able to record absence, but is not able to follow through with GP reports and other relevant medical information, occupational health organisations may be of assistance. An occupational health physician would be able to offer advice on the likelihood of the employee returning to work, the length of time an employee is expected to be away from the workplace, and any reasonable adjustments that may be required to the workplace to accommodate a disability. Providers in this area include Aon, AXA PPP, BUPA, BMI, Cheviot Artus and Previa.
An alternative is to use absence management providers. These fall broadly into two camps: those who monitor short and long-term absence, and those who only monitor long-term absence. Essentially they offer total or partial outsourcing of the absence recording process. Where a provider monitors all absences, an employee is required to phone the provider on the first day of absence, giving an indication of the expected return to work date. The employee's manager and the HR department are then notified of the absence, usually by e-mail. Depending on the reason for absence, the provider would contact the employee, offering advice and ascertaining when the employee would hope to return to work. The providers are able to produce reports detailing which employees have been away from work, thus highlighting employees who have recurrent short-term absences. Providers in this area are those mentioned above, as well as Rubicon, Active Health Partners, Medisure and Corporate Solutions.
Providers who monitor absence after a specified time, such as five, eight or 10 days absence, would seek referral from the organisation, rather than rely upon employee notification. The provider would contact the employee in line with the organisation's absence policy, and request the employee completes a consent form in order for the provider to speak with the employee's GP. The provider would liaise with the employee, the GP, other relevant consultants and the organisation, ensuring the employee was receiving treatment in a timely fashion with a view to returning to work. Although this type of provider does not record absence from day one, they will, on referral from the organisation, monitor an employee who has recurrent absences. A key provider in this area is CIGNA, which claims that its early intervention, via measurements of protocols for key conditions, can result in an average of a 10% savings in terms of days lost.
Although these providers claim to reduce sickness absence costs, this is difficult to substantiate, especially since a high proportion of organisations do not understand the full cost of absence. Before implementing an absence policy, an organisation must identify the current costs involved, to ensure that any future measures put in place have a positive impact.
Any organisation's performance is dependent on its employees. The (poor) performance of an employee is a risk to an organisation. The monitoring of absence is therefore clearly important in diminishing this risk. As a first step, organisations need to ensure that their current absence policy is robust and communicated to all employees, and that they continue measuring their absence rates but at the same time monitor the real cost.
Where monitoring absence is not core to the business and would be difficult to implement, the saving in the cost of absence could far outweigh the cost of outsourcing the monitoring and early intervention methods used by the providers mentioned.
That said, organisations that continue to monitor their absence policies based on the average absence rate, without differentiating between genuine and non genuine sickness or between short and long-term spells of sickness, will not be able to manage the risk effectively. In all cases a precise understanding of the real nature of absence and the real costs involved are essential to calibrate the absence management process. Those who simply seek to reduce statistics (especially at the margin) on the basis that 'it must be a good thing' run the risk of not realising any practical benefit to their business.
Naomi Sarragoussi is a consultant in Watson Wyatt's healthcare and risk consulting team, Tel: 01737 241144
