UK: Employee Absenteeism - Making Up For Lost Time

Employee absenteeism can have a huge impact on a business. Matt Haswell offers employers some practical advice on how to counter the losses.

Sick leave and absenteeism can take a heavy toll on a company’s productivity and place a huge financial burden on employers. In addition to lost revenue, sick pay and the costs of temporary cover, an employer may need to adapt the workplace, implement a rehabilitation strategy and operate a support programme for employees who become incapacitated. Employers also need to consider recruitment and retraining, and ensure they comply with the Disability Discrimination Act. In short, the costs of illness can be high and unpredictable.

Joint research by the Confederation of British Industry and Axa shows that in 2006, the cost of staff absence to the UK economy rose to £13.4bn, with over 40% of overall time lost attributable to longer periods of absence – 20 days or more. The average employee took around seven days’ sick leave in 2006, losing UK businesses 175 million working days in total.

It’s not much of a surprise to learn that the best-performing organisations lost an average of just 2.7 days for each employee, while the worst-performing organisations lost 12 days for each employee. At nine days for each employee, the public sector had the highest average absence – 44% higher than the private sector.

Not surprisingly, long-term physical illness is more significant for manual employees, while stress and recurring illness are more common among non-manual employees. Other causes of absenteeism include personal responsibilities and low morale in the workplace. The greatest impact on business is long-term rather than short-term absence.

Under employment protection legislation, an employee’s inability to perform his or her duties due to disability is a legitimate reason for dismissal. However, the 1995 Disability Discrimination Act requires employers with more than 15 staff to modify (within reason) a job so that it can be done by a disabled person, whenever it is reasonable to do so. This could include modifying premises, providing training, or altering working hours and procedures. This should be the case whether somebody applies for a job or suffers illness or injury while already employed. It is in no way dependent upon the disability arising through work.

Employment tribunals often have to determine whether an employer has acted reasonably. High-profile cases highlight the potential costs to employers who do not take steps to deal with workplace stress. Where employers have not taken appropriate steps, awards of over £150,000 have been upheld for complaints about excessive workload or stress. However, the Court of Appeal has overturned some cases on the basis that employees must bring the stress symptoms to their employer’s attention. Such cases suggest that any employer who offers a counselling service would be unlikely to be found in breach. Also, with proper benefit structures and employment contracts in place, there is no reason for employers to fear court decisions or legislation.

Employers can take a number of steps to reduce absenteeism. They can give responsibility for absence management to senior or HR managers rather than line managers, introduce return-to-work interviews, notification procedures, occupational health services and employee assistance plans.

In particular, occupational health services are now widely recognised as a method of managing absence and employer liability claims. The aim is to reduce the frequency and duration of absence, including planned absence due to operations or hospital procedures. These services can also help to manage the costs of long-term disability payments and group income protection cover by limiting claims and returning employees to work more quickly.

Absenteeism cannot be completely eradicated, so employers should make financial provision for payment of sickness benefit. Group income protection schemes (also known as permanent health insurance) insure against the variable – but potentially huge – cost of supporting staff who suffer from long-term disability. These schemes can be a cost-effective way of providing cover. All members of the scheme can be insured up to a certain level (known as the ‘free cover’ level) without the need for medical evidence, and irrespective of their state of health. These schemes may also improve employee relations, staff morale and could help to attract and retain staff. The cost of the cover is not a benefit in kind for the employee and so does not appear on a P11D return form. What’s more, premiums usually attract corporation tax relief for the employer.

Income protection schemes provide an incentive for an employee to return to work. The schemes offer a regular payment of a proportion of an employee’s earnings during a period of extended absence through sickness, injury or accident.

Cover continues until the employee’s recovery, death or on termination of the insured period (normally retirement age), depending on which occurs first. About half of income protection claims cease within three years and two-thirds within five years. Traditionally, most income protection schemes are written with an unlimited claim period. However, shortening this period to five years dramatically reduces scheme costs, while providing sufficient cover.

Once an insurer has accepted a claim, it is usual to retain the employee on the payroll. This means that he/she can continue to enjoy other benefits, such as life cover and pensions, and remain entitled to state benefits. An additional amount can be insured to cover the employer’s liability for National Insurance Contributions on the benefit, and the employer’s and employee’s continuing pension contributions.

The aim of both the insurer and the employer is to help the employee return to work. Many insurers offer help with rehabilitation or medical treatment to reduce the length of absence.

A total of 12.8 million working days were lost due to stress, depression and anxiety in 2004/05, according to The Health and Safety Executive (HSE). Prolonged work-related stress can lead to poor performance which can, in turn, lead to staff seeking alternative employment, leaving employers with additional recruitment and training costs.

The HSE advises managers to carry out a risk assessment to find out if they are placing undue demands on their workforce. Occupational health professionals are skilled in assessing the workplace for causes of absence and this is equally true for causes of stress.

Support may include discussing workplace problems, discouraging long working hours and controlling hazards, such as noise, harmful substances or abuse.

So, as we can see, there are many ways to counter the costs of employee absenteeism, whatever its causes, and employers would be well advised to consider their options carefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.