What Absenteeism Really Costs Your Business

In this article, we’re going to lay out and break down the true cost of absenteeism to a business.

Workplace absenteeism is a costly issue, particularly when you consider all the hidden costs that aren’t so evident. We’re going to look at each of these areas in which absenteeism costs you money, either directly or indirectly, and help you understand why this is a problem worth addressing.

How Do We Define Absenteeism?

It can be difficult to define absenteeism in the workplace. Each business may have different standards for what is an acceptable absence rate, and circumstances also need to be taken into account.

Some HR thought leaders consider it to be “excessive” absenteeism when someone has two or more unexcused absences per month. This is a good ballpark figure, but not necessarily a universal answer.

In differentiating between normal absences and absenteeism, consider questions like:

• Regularity – how often is the employee absent?
• Is there a reasonable explanation for their absence?
• Do they give notice as early as possible?
• Are there any suspicious patterns to their absenteeism? (e.g. the same day every week, absences that coincide with another employee being away)
• Is it a long-term trend?

You can (and should) set out expectations in your employee attendance policy. But don’t forget that some absences are unavoidable (such as a normal level of sickness, or issues in an employee’s personal life), and you should be willing to accept a less-than-perfect attendance rate.

What is the Cost of Absenteeism?

Depending on the source, the cost of absenteeism can be estimated somewhere in the range of $2,500-$4,000 per employee per year.

Circadian’s study, “Absenteeism: The Bottom-Line Killer”, quotes the cost of absenteeism as roughly $2,650 per year per employee for salaried employees, and $3,600 per year for each hourly worker.

The CDC estimates the cost per employee lower, at $1,685 per employee, which adds up to $225.8 billion per year for US businesses.

The Integrated Benefits Institute puts the cost of sickness-related absenteeism to US businesses at $575 billion per year, and $3,900 per employee annually.

A survey by the Gallup-Sharecare Wellbeing Index found that lost productivity due to US workers with chronic health conditions totaled $84 billion per year. Note that this only considers the cost of lost productivity, which is just a part of the overall cost of absenteeism (and also doesn’t take into account non-sickness related absenteeism).

Breaking Down the Cost of Absenteeism

The true cost of absenteeism is so hard to nail down to an exact figure because there are so many factors that play into it. Some are easy to quantify and put a number on, while others are less clear.

Let’s take a deep dive into it and understand exactly how employee absenteeism costs businesses around the world hundreds of billions each year.

Sick pay

The easiest part of the overall absenteeism cost to quantify is the cost of sick pay. While not all absenteeism results in paid sick leave, much of it does. For this, businesses are paying employees for the time they spend away from work.

Lost productivity

Productivity costs make up the majority of the cost of absenteeism. This is difficult to measure exactly, but is a clear and real cost. It’s reasonable to expect a dropoff in the team’s overall productivity when there are absent employees, especially in cases of unscheduled absenteeism.

Temporary/replacement staff

The business may need to bring in replacement staff on a temporary basis to cover absent employees. As absenteeism often happens with little or no notice, the business may have to pay these staff a higher rate to convince them to come in (and may also need to pay temp agencies a fee to supply replacements).

Increased time spent on training and management

The company likely needs to train temporary or replacement staff, or existing staff filling in for absentees. This is an additional cost. They may also require closer management, which takes more productive time from your higher-paid managers or supervisors.

Administrative costs

Tracking absences, following up with absentees, handling sick pay, calling in replacements, adjusting schedules are all small administrative tasks that come along with each employee absence. The more employee absences, the more this cost adds up.

Time spent on disciplinary proceedings

If disciplinary action is necessary, the time managers/supervisors and employees spend in disciplinary proceedings is another cost to consider. And again, this is likely to involve the valuable time of some of the company’s higher-paid employees.

Potential for missed deadlines, issues with clients/customers

Employee absenteeism may result in lower-quality work, missing critical deadlines or trouble serving customers/clients, which may in turn result in lost revenue for the business.

Employee morale and togetherness

One more element that contributes to the cost of absenteeism is the cost to employee morale, which is difficult to really measure. When one employee is routinely absent, others may need to cover by taking on a higher workload or more hours.

The increased workload means they may burn out easier, their own productivity may drop, they may face mental health issues, and their job satisfaction may drop. Absenteeism can cause a rift in the team, hurting overall morale and teamwork, and having wider-reaching effects than the direct costs of absenteeism.

How Much Absenteeism is Normal?

Absences happen in every business, including unexpected or unscheduled absences. It’s normal to get sick every now and then, and employees have issues in their personal lives which sometimes require attention.

It’s important for companies to understand this, and accept a certain level of absenteeism (though the employee should be able to provide a reason – it’s not okay for someone to just not show up without an explanation).

The average sickness absence rate in the UK is 2.6%, and 3.6% in the US. Worldwide absence rates vary quite a bit, with employees in Israel missing on average 3.9 days per year due to illness, while those in Norway, Czech Republic and Germany missing on average 15+ days per year.

As a rough idea, expect something around 2-4% absenteeism in your company. Anything significantly more than that can be considered excessive absenteeism. 

Is a Zero Absence Rate Good?

Though, generally, a lower absence rate is a good thing, you don’t necessarily need (or want) to have a 0% absenteeism rate.

As mentioned before, sickness is a normal thing. It would be great if employees never got sick, but this is very unlikely.

A business with a 0% absenteeism rate most likely has this because they’re putting undue pressure on employees to come into work when they’re sick. It may also be because they don’t provide paid sick leave, and employees come in even when they’re unwell, because they don’t want to lose pay.

This is a problem as big as absenteeism, known as presenteeism. When employees don’t take sick leave when they’re unwell, their productivity suffers over a longer period, and they also risk spreading sickness around the workplace.

The ultimate cost of presenteeism is more than the cost of allowing an employee one or two days to rest and recover, collect sick leave, and come back to work 100%.

Don’t aim for a 0% absence rate. Accept that, sometimes, employees need sick leave or a personal day.

How to Prevent or Reduce Absenteeism

To reduce absenteeism rates in your business, the best cure is prevention. You want to create an environment with clear expectations and the support employees need in order to stay healthy, happy and motivated.

Some things you can do include:

• Offering enough vacation time or workplace flexibility, for employees to maintain a work-life balance.
• Provide wellness benefits and paid healthcare.
• Make sick leave available when needed.
• Set clear attendance explanations in your employee handbook.
• Regularly communicate with employees about their satisfaction at work.
• Manage employees’ workload and working hours, and avoid overwork.
• Build a healthy and collaborative working environment and have a zero-tolerance policy for things like workplace harassment.
• Track attendance trends with an absence tracker software.

If you notice employees trending towards higher than normal absenteeism, take action right away, by having an open and compassionate discussion with them.

Try to identify and treat the cause of their absenteeism. Do what you can to ensure they’re healthy, happy and motivated. And as a last resort, you may want to consider disciplinary action.

Successfully reducing the absence rate in your business will save a significant amount of money per year, and help you build a more productive workplace.