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It is expected, by most employers, that their workers will miss a certain number of workdays each year. When employees begin to chalk up excessive absences, decreased productivity and morale – as well as an impact on a business’s finances – become apparent.
Employee absenteeism is a more overlooked cost to businesses than turnover. This is in part due to employers having limited ability to accurately and regularly track how much absenteeism is reducing their bottom line earnings.
How much does employee absenteeism cost?
According to ‘Absenteeism: The Bottom-Line Killer’, by Circadian, unscheduled absenteeism costs roughly $3,600 per year for each hourly worker. Additionally, it also costs roughly $2,650 each year for salaried employees. The costs associated with absenteeism may include:
- Wages paid to absent employees, and or overtime cost to other employees covering a shift
- The administrative costs of managing absenteeism, including payroll disruptions
- Cost of management impacts on revenue for the time and effort spent to make up for employee lack of attendance
- Poor quality of goods/services resulting from overtime fatigue or understaffing
- Reduced productivity
- Safety issues (inadequately trained employees filling in for others, rushing to catch up after arriving as a replacement, etc)
- Poor morale among employees who have to “fill in” or do extra work to cover absent co-workers
RELATED READING: The 3 Levels of Employee Engagement & How They Affect Your Bottom Line
How much absenteeism do businesses incur?
‘Absenteeism: The Bottom-Line Killer’ also specifies, in the average hourly workplace, typical unscheduled absenteeism rates range from 5% to 10%. That is, at any given time 5% to 10% of the workforce is missing from work. The rate varies by industry but industries that face more stress tend to have higher absenteeism rates.
Anything that results in an increase in payroll costs, an inability to meet demand, or other aforementioned issues, should be a major concern for all managers. But how much does absenteeism cost?
How to calculate the cost of employee absence
Understanding the frequency of absenteeism leads to the question about your bottom line. If absenteeism is happening at your workplace, then how much is it costing you?
Using an absence calculator created by Engage & Prosper, an employee research firm, we can insert several data points – the number of working days per employee, percentage of absence, average employee salary, and cost to replace an employee – to find the cost of absenteeism.
You can see the daily cost of employee absences add up. In this example, absenteeism costs £452.00 or $584.44 per individual each day they are absent.
According to the Workforce Institute, a company of 5,000 hourly employees has the potential to reduce costs by over $7.9 million per year, or 3.2% of total payroll.
How can you reduce the cost of absenteeism?
Just as it costs businesses money during absenteeism, it also costs your employees. It’s easy to pick up the phone and call in sick if you aren’t visualizing what that means for your paycheck. One solution to encourage workplace participation and reduce absenteeism is to show your employees what they are missing from their paycheck each day they call in sick.
Earned wage access benefit that allows employees to withdrawal money, daily, from the income they have earned since their last paycheck. A byproduct of this software is that employees can connect the dots between working hours and earned income. After each shift, they can log on to their account and see how much they earned that day, and if they choose, they can withdraw their money. If they don’t work, they won’t have any funds to withdraw.
According to a survey we recently conducted, companies that use DailyPay experienced an uptick in employee attendance. Not only were employees less absent, but they were also inspired. 73 percent of DailyPay users say they are motivated to come to work after using our earned wage access app.
