Beyond sick leave: the true cost of employee absence

Absence can be a silent killer of an organisation’s bottom line. Uncovering the true cost of absence in 2022 is often an alarming discovery, leaving HR and C-suite leaders surprised when they learn how to calculate it.

In one ASX-listed company, we found that the total cost of employee absence (excluding turnover) was over $33m. Traditional absenteeism contributed to just $2m.

In another company, they lost an average of 39 FTE in absences due to unplanned leave alone which was perhaps indicative of the workforce bearing the burden of leave coverage each month.

Looking through the keyhole

Seemingly ‘spiralling’ and ‘out of control’ workers’ compensation insurance costs are leading CFOs to increasingly draw their attention and time to this particular type of absence cost, yet high-performing HR leaders now understand workers’ compensation insurance costs are often less than 10% of the total cost of absence.

Preventing costly workplace injuries and illness is just part of the picture.

Addressing such costs in isolation or failing to understand hidden costs of absence is presenting significant opportunity costs for employers looking to tackle this overall challenge. So, what should HR and people leaders look out for and do?

Showing up to presenteeism

Presenteeism is just one emerging contributor to the total cost of absenteeism. It is not a new concept but one which is very rarely quantified. HR leaders should look out for a large volume of short absences as the clearest pre-indicator of a workforce struggling to cope physically or emotionally.

Working together, HR leaders and people leaders should identify ways to allow for the increased reporting of issues which impact presenteeism e.g. pain and discomfort. We’ve found that pre-claim assistance from an employer is associated with an 18% higher return-to-work rate for physical injuries and 33% for psychological injuries.

In one recent example, staff at a large legal services provider in Victoria were provided the opportunity to flag mental health issues arising from either work pressure, interpersonal conflict or disrespectful relationships.

As these issues were reported, interventions were put in place to identify suitable duties, or to resolve conflict situations as they arise, rather than to wait until a claim has been raised or the person is absent from the workplace. If the interventions did not resolve the issue and the health issue continued, appropriate claims or other supports were put in place to meet longer-term treatment needs.

Adopting this approach reduced premium impacts for the company by $500,000 in one year and the duration of mental health injuries has now significantly reduced in the event that claims are lodged.

Tackling absenteeism itself

When managing absenteeism directly, employees absent for over 70 days typically have a 35% chance of ever returning to work. Getting people back to work fast with a clear return to work and treatment plan should be a key focus.

Data from Safe Work Australia notes that in the first 30 days after an injury, having a return-to-work plan increases the odds of returning to work by up to 1.7 times.

A positive and empathetic claims management experience between the employee and employer goes a long way. As the saying goes, people don’t quit their jobs – they quit a boss. People leaders have a big role to play to help reduce the cost and duration of claims.

People leaders should maintain regular contact with the injured worker from notification of injury to claim closure, particularly in the first 72 hours. Workers who receive support from their employer have up to five times greater odds of returning to work. Employees contacted within three days of injury are 26% more likely to return from a physical injury and 45% more likely to return from a psychological injury.

What HR and people leaders need to ask

To uncover the true cost of absence, leaders need to ask three key questions:

1. What is driving absence in their business?
2. Where exactly is absence occurring?
3. What is the return on investment on wellbeing initiatives to reverse any absence trends?

Attracting and retaining staff continues to be a top challenge facing organisations, and labour turnover is a significant contributor to the total cost of absence.

Creating a positive culture of care is at the core of addressing every aspect of the way absence is viewed and handled by an organisation.

Waking Up to Absence Report

Lockton’s 2022 Waking Up to Absence Report is available for download.

Morag Fitzsimons is the head of compensation, safety and wellness at Lockton

A note from the editor: Please note that this article has been prepared for informational purposes only, and is not to be construed as legal, financial or other advice.