Previously, the costs of absenteeism were considered immeasurable and unmanageable and were therefore often belittled and systematically neglected. However, in recent years, trends are changing, so the costs of absenteeism in organizations are trying to be identified, differentiated and possibly reduced using certain advanced tools and methodologies.

It is increasingly recognized that the cost of absenteeism is not just the cost of compensation paid to sick workers, but that there is a whole range of direct and indirect costs that burden not only the employer but the economy as a whole.

The costs of absenteeism include the following three types:

Direct costs

These costs are easily noticed by most employers through the calculation of workers’ salaries, and are directly related to the fact that the worker is absent from the work process. Direct costs include, among other things:

• Sick pay benefits at the expense of the employer
• Salary benefits while the worker is on vacation
• Cost of replacement workers
• Cost of overtime hours
• Amounts of other benefits defined by collective agreements or labor regulations, which are related to the absence of workers

Paradoxically, the vast majority of employers consider direct costs to be dominant in total absenteeism costs. However, the truth is completely different – direct costs make up only one-quarter of the total cost of absenteeism while other ¾ make up other types of costs.

Administrative costs

Include all the costs of additional administrative work that need to be invested within an organization to address worker absenteeism, as well as those administration costs incurred to compensate for the absence of workers from the work process by hiring a new worker. Therefore, we include here:

• The cost of calculating the salaries of workers who are absent from the work process
• The cost of the increased volume of documentation that needs to be processed for those workers who are absent
• The cost of the selection process for selecting replacement workers
• Administrative cost of hiring replacement workers
• The cost of equipping and introducing replacement workers in the business process, etc.

Indirect costs

Indirect costs account for the largest share of total absenteeism costs. They include all those expenses that many employers do not directly link to absenteeism, and which also have an impact on the overall picture of the company’s business. Thus, the indirect costs of absenteeism include:

• The cost of educating replacement workers
• Additional managerial hours spent on education and supervision of replacement workers
• Cost of downtime and/or business interruption
• Fluctuation of workers
• Decreased customer/user satisfaction due to inability to deliver and/or delays in delivery
• Decline in productivity
• Fall of employer branding, etc.

Indirect costs are a major problem for the management of most companies because they are very difficult to differentiate within labor costs. Therefore, this type of cost is perhaps easiest to explain by the example of a drop in productivity in the case of an increased number of absences from the work process.

Take, for example, that in one organizational unit in charge of one business process there are five workers, one of whom often, for various reasons, temporarily “falls out” of the business process (absenteeism). The employer representative then redistributes all the work to the remaining four workers who then necessarily have to work faster and longer to compensate for the lack of one worker. In the event that this happens frequently or if the phenomenon is long-lasting, it will inevitably frustrate workers who work beyond their means, consequently, their productivity will decrease and the possibility of injury at work will increase, and ultimately turnover will occur.

If, on the other hand, replacement workers are hired to replace the missing worker, according to research data (Survey on the total financial impact of employee absences; 06/10; Mercer health & benefits LLC), due to the process of induction, efficiency falls between 20% and 30%, while hours of replacement workers cost between 15% and 20% more than hours of full-time workers. Additionally, a large number of hours of management and other workers is spent on training and supervision of replacement workers and a whole range of other ancillary costs.

Sick leave as a dominant form of unplanned absenteeism

Sick leave is considered a temporary incapacity for work, ie absence from the work process due to illness or injury and other circumstances related to the health condition, due to which the employee is prevented from performing his work obligation in accordance with the employment contract, other contract or act. the worker is entitled to salary compensation.

In Croatia, the payment of benefits is charged to the employer in the first 42 days, after which the obligation to pay benefits passes to the Health Insurance Institute. A similar distribution applies in the surrounding countries, only the number of days in which the cost of sick leave is borne by the employer differs (between 30 and 42 days). The situation is similar with the amount of compensation ranging from 65% (Serbia), 70% (Croatia) to 80% (Slovenia).

In the case of occupational injuries and occupational diseases, the practice varies from state to state. In Croatia, compensation for work-related injuries and occupational diseases is allocated to the health fund from the first day, and the full amount of the basic salary (100%) is paid. In the surrounding countries, the model differs a lot from country to country, where, for example, the employer in Serbia bears the full cost of compensation in such cases, but almost all have in common that the compensation is 100% of salary (with different bases, usually the average salary in last few months or in a calendar year).

Frequent sick leave has a detrimental effect on the overall productivity of the business system and directly negatively affects the competitiveness of the offer of products or services.

Poorly defined legislation in the field of labor relations

Irresponsible workers often use this situation, so they can use targeted sick leaves based on subjective symptoms of pain or discomfort, which results in a large number of cases and days of sick leave.

The second-largest generator of sick leave is hidden in poorly defined legislation in the field of labor relations, which also defines the rights and obligations of participants in the process of using sick leave. There are a number of legal barriers to the protection of data confidentiality that prevent the employer from reacting in a timely manner in certain cases of employee absence.

Do you want to get an insight into the real reasons for the absence of your employees? See how Improv3 can help you with that.

According to the Law, the employee must submit a certificate of temporary incapacity for work within 3 days, which often does not even contain data on the estimated duration of sick leave. This means that the employer does not have any data on the real causes of absence for at least three days and after that period the scope of data is far from sufficient for the employer to initiate a mechanism to adapt to the new situation (hiring a replacement worker or redistributing work to other workers).

By abolishing the diagnosis code according to the International Classification of Diseases (ICD Code), the situation will be further complicated because employers will not be able to predict for themselves how long the absence could last and act in accordance with their assessment. Although employers do not approve of such a move by the legislator, it should be noted that such a decision is the result of good practice as applied in developed countries. By decoding the ICD code, the employer comes into possession of the employee’s personal data, which can be easily misused.

Abuse of sick leave

The abuse of sick leave as a generator of sick leave days comes only in third place. This phenomenon is encouraged by irresponsible individuals who mainly use the right to sick leave to perform other work for the purpose of earning additional income such as additional work, field work or tourism. Sometimes some workers abuse sick leave when they want to put additional pressure on the employer in the event of a conflict, or strengthen their position in the event of a labor dispute.

The fact that 95% of companies do not even have an elementary procedure for collecting data on absenteeism shows how unprepared employers are for managing absenteeism, especially sick leave.

These generators strongly encourage an increase in the frequency and duration of sick leave, but the fact that employers do not have even basic procedures to prevent or alleviate high absenteeism increases the problem so much that it can jeopardize the normal functioning of business processes in companies.

An additional problem is the barriers posed to the employer by data protection legislation, so any absence management activity must wait for the worker to return to work or at least submit a minimum set of documents (such as a certificate of temporary incapacity for work). The result of all this is that employers do not deal with the management of employee absences at all, that is, they eventually passively observe certain phenomena without the possibility of reaction in order to optimize business.

Damir Kovačević, Vice President at Absence Insight

Do you want to get an insight into the real reasons for the absence of your employees? See how Improv3 can help you with that.