Sickness absence is an issue of concern among employers in the UK owing to changing legislation, increased competitive pressures and the greater awareness of the costs incurred as a result of absence. Despite this concern over sickness absence, virtually no robust data exists on its direct or indirect costs. The most usual method of estimation uses only the basic salary of the absent employee, and neglects other significant aspects such as other salary oncosts, overtime, payments to replacement workers and all management costs from both line management or HR functions. As a provider of long-term disability insurance, Unum Ltd was seeking to fund independent and robust research to establish a sound and accessible approach to the costing of health related absences among UK employees. The Institute for Employment Studies (IES) was commissioned to conduct a study which would devise, test and apply such an approach. This report presents the findings of the first stage of this work. The study consisted of four elements.
Firstly, an extensive literature review which demonstrated that although many aspects of absence had been investigated, comprehensive analysis of absence costs at the firm level was rare. Secondly, the creation of a case study methodology to collect information from a small number of predominantly private organisations about their business context, approach to absence, absence patterns and costs. Thirdly, the testing within each organisation of a spreadsheet tool which collected data across a range of headings. The last element is the analysis of the data from each case study to examine the absence costs attributable to different staff groups and to derive aggregate costs. The study used nine case studies to explore costs associated with absence and the reasons for their variability. The main findings of this first stage of the research are: organisations appear ill-equipped to form a comprehensive view of their absence costs. This is applies even to "leading edge" UK employers who have the most sophisticated information systems.
This implies that they are making decisions leading to considerable expenditure on staffing with only a partial view of the likely cost and no means of identifying the short- or medium-term benefits of this expenditure. The study suggests that between two and 16 per cent of annual salary bill may be spent by employers on absence. It is likely that as little as half of this can be attributed to the gross employment costs of those who are absent. The remainder of the costs are determined by the choices the employer makes about how absence is covered, the extent to which absence management procedures are followed and how pro-actively long-term absence is managed. The factors that affect the variability of absence costs are the number of part-time staff, the age profile, occupational mix of employees and the work location. Additionally, the balance between short- and long-term absences is important, as long-term absence incurs higher costs. Evidence from the studies suggests that the impact of long-term disability insurance (LDTI) on costs is effective only if it is combined with a coherent absence management strategy.
Early intervention in possible long-term absence will reduce costs; but short-term absence is often the main emphasis of absence management policies. Unum Ltd has a clear interest in the impact of long-term disability insurance on absence costs and its benefits to employers. The research to date implies that employers have no appreciation of the annual costs of absence to their businesses.
Stephen Bevan is an Associate Director of IES, where Sue Hayday is a Research Fellow. Both have written widely on issues of employee absence, reatention and motivation. Stephen Bevan is an acknowledged expert and adviser on these issues to leading UK employers.