Absence Costs

Table of contents:

• What are absence costs?
• Types of absence costs
• Measuring absence costs
• Reducing absence costs

What are absence costs?

Absence cost refers to the financial impact that employee absenteeism has on an organisation. It includes both direct and indirect expenses arising from employees being unable to work due to illness, personal reasons, or other authorised absences. Understanding and managing these costs is critical for businesses aiming to maintain productivity, reduce expenses, and improve overall operational efficiency.

According to the Office for National Statistics (ONS), the UK experienced a record high of 185.6 million working days lost due to sickness or injury in 2022, marking an increase of 35.8 million days from 2021. This equates to an average of 5.7 days lost per worker.

Financially, the Institute for Public Policy Research (IPPR) reports that the annual hidden cost of employee sickness has risen by £30 billion since 2018. Of this increase, £25 billion is attributed to reduced productivity from employees working while unwell, and £5 billion to an uptick in sick days taken.

Types of absence costs

Direct Costs

These are easily measurable expenses directly linked to an employee's absence. They include:

• Sick Pay: Wages paid to employees while they are off work due to illness.
• Overtime Pay: Additional wages paid to other staff covering the absent employee’s workload.
• Temporary Staff Costs: Hiring temporary workers or contractors to fill in for absent employees.
• Healthcare and Insurance Expenses: Costs related to health insurance claims and medical treatments.

Indirect Costs

Indirect costs are less obvious but often have a more significant long-term impact. They include:

• Lost Productivity: A drop in output due to understaffing or less experienced temporary workers.
• Reduced Customer Satisfaction: Service delays or errors caused by a lack of skilled staff.
• Lower Employee Morale: Increased workload on remaining team members, potentially leading to more absences.
• Managerial Time: Time spent managing absences, reallocating tasks, or recruiting temporary staff.
• Training Costs: Expenses for onboarding and training replacement workers.

Measuring absence costs

Measuring absence costs involves tracking both direct and indirect expenses resulting from employee absenteeism.

Organisations typically use metrics such as the absence rate, calculated by dividing the number of absence days by total working days, and the cost per absence day, which represents the financial loss per day an employee is absent.

Another key metric is lost working hours, which quantifies the total work time lost due to absenteeism. Advanced absence management systems can automate this data collection, providing real-time insights into how absences impact overall business performance.

Reducing absence costs

Reducing absence costs involves proactive management strategies that minimise both the frequency and duration of employee absences. One effective approach is implementing an absence management system that tracks absences, identifies patterns, and automates processes such as return-to-work interviews. This reduces administrative burdens while ensuring timely interventions.

Promoting employee wellbeing is another critical factor. Health and wellness programmes, such as mental health support, fitness initiatives, and access to counselling services, help prevent stress-related absences. Offering flexible working arrangements, such as remote work or adjustable hours, can reduce absenteeism by enabling employees to balance personal responsibilities more effectively.

Establishing clear absence policies ensures that employees understand the procedures and consequences of being absent. Regular communication and training for managers help enforce these policies fairly and consistently. Introducing return-to-work programmes can also facilitate smoother reintegration for employees returning after long-term absences, reducing the risk of future absenteeism.

By combining technology, supportive policies, and a culture of wellbeing, businesses can reduce absence costs while boosting productivity and fostering a more engaged and resilient workforce.