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What Causes Cost of Absenteeism and What You Can Do About It


Employees taking leave is such a common and expected part of running a business that it can be easy to forget that there are business impacts. The truth is that workplace absenteeism—particularly when it’s frequent or unexcused—can have a significant impact on an organisations’ bottom line.


What is cost of absenteeism?

Absenteeism refers to habitual absences of employees from work. This isn’t the same as occasional sick leave or scheduled holidays—it’s the repeated unexplained and unplanned absence of employees that affects the day-to-day operations of the business. Unmitigated, absenteeism can be costly to organisations and their workforce financially and in terms of productivity and employee morale.

What factors affect cost of absenteeism?

First, let’s clarify the difference between planned and unplanned absences.

Since they’re scheduled, planned absences are easier for businesses to manage and ensure that there’s as minimal a hit to productivity as possible. This isn’t to say that planned absences are entirely without ramifications for organisations, because they still contribute to absenteeism costs. (A day off work is still a day off work, even when accounted for.)

This also isn’t to say that unplanned absences are always unexcused absences with no good reason. Family emergencies, sick days and medical appointments are legitimate and largely unavoidable reasons for unplanned leave, but other reasons like stress or burnout could indicate issues with the workplace that need to be addressed.

Like planned absenteeism, unplanned absences add to absenteeism costs. The extent of those costs depends on the length and frequency of absences.

Both types of absenteeism can occur for legitimate or illegitimate reasons, and affect the cost of absenteeism. In some ways, intermittent absenteeism is more disruptive to productivity than chronic, as organisations can hire temporary workers to fill positions during extended periods of leave. While neither type is considered to be specifically planned or unplanned, they can be considered an excused or unexcused absence.

Common reasons for absences and what that means for cost of absenteeism

Businesses shouldn’t lump planned and unplanned absenteeism together, because the underlying causes of each require different approaches to solve. The most commonly reported reasons for absenteeism are:

The type of industry or job role will also affect absence rates. Healthcare and other service operations tend to have a higher sickness absence rate than other industries, meaning those services will have increased absenteeism costs as a result.

Time of year also plays a part. People tend to take more time off around public holidays, or take sick leave during cold and flu season.

The organisational impacts of employee absenteeism

So what is the cost of absenteeism, exactly? Put simply, it’s the monetary impact absent employees have on your business operations and revenue. There are a few different ways to calculate an organisation’s cost of absenteeism.

The simple formula (if you only want a rough approximation of the cost of absenteeism), is to double the daily wage of the absent employee.

The more complicated way is to use Houtzager’s formula, which takes multiple different costs into account:

Cost of absenteeism formula: ACE = (LH x (WHP + EBC) + SLH x (SHP + SBC) + OC ) / E


So, what expenses contribute to the cost of absenteeism?

There are both direct and indirect expenses that contribute to the total cost of absenteeism. Direct costs are the expenses an organisation incurs due to employee absences. These could include:

Indirect costs, on the other hand, are intangible costs of absenteeism. These costs include:

The cost of absenteeism will differ depending on which direct and indirect expenses are involved, which is why it’s important to understand the underlying issues that cause absenteeism. Employees taking sick days or holidays is inevitable and to be expected, but when they take time off due to stress or burnout, it points to problems in the workplace that need to be identified and addressed.

How do you track absenteeism costs?

So, how do you keep track the costs of absenteeism when indirect costs like reduced productivity are hard to benchmark?

  1. Know your absenteeism rate. This is the percentage of unscheduled absenteeism among employees. You can find it by dividing the total number of days employees missed by the total number of scheduled workdays (i.e. excluding weekends and public holidays).
  2. Track direct costs. This includes wages paid to absent employees, temporary staff and overtime workers as well as any other costs that may have come up as a result of absenteeism (like insurance).
  3. Determine indirect costs. Because these are the intangible expenses to a business, they are harder to calculate. You can get a rough estimate of indirect costs by multiplying the absenteeism rate by the average revenue per employee per day.

Look to your HR software to automate tracking of absenteeism rates and the corresponding costs, saving up time for analysis. Analysing the collected data can identify trends and patterns in employee absences, making it easier to pinpoint areas for improvement that can reduce absenteeism.

You can also evaluate the causes of absenteeism by providing regular anonymous surveys to employees. They allow employees to provide feedback on the workplace morale and culture, workloads, and wellbeing of the workforce, which could be contributing factors in absenteeism. 

Just remember that not all employees will be comfortable voicing their opinions, even anonymously, especially if the culture is historically toxic or unsafe for them to do so.

Strategies to reduce the cost of absenteeism

There are a few strategies you can implement to help manage absenteeism costs. The big thing that needs to be done is addressing the causes of absenteeism (surprise, surprise). 

Address job-related issues

Maybe you have inadequately trained employees filling roles, and they lack the current capabilities to perform in their role. It’s then about offering stronger onboarding programs and training and development opportunities to build employees’ necessary capabilities to perform their job.

If employees are on top of the capabilities required of them, they’ll be more engaged in the workplace and have greater job satisfaction. This allows them to be a more productive member of the workforce.

We designed Acorn Performance Learning Management System (PLMS) specifically to offer more impactful learning experiences. It’s the only solution that guides learners step by step to master the capabilities of their job roles. By mapping learning content to capabilities, Acorn designs learning pathways that put the right content in front of learners in their moment of need—so they can excel in their role

Implement wellness programs

This is about promoting healthy lifestyles and behaviours to reduce stress and improve mental health and job satisfaction. Some companies offer incentives like gym memberships, counselling or other opportunities to encourage overall health. Health-based job benefits can reduce stress and increase job satisfaction, potentially decreasing absenteeism and fostering a positive and productive workplace culture.

Work-life balance

Employees don’t want to feel that their work is taking over their personal lives. By creating an expectation that work should be kept within business hours (i.e. not expecting employees to work extended hours or over weekends), employees are less likely to experience burnout, stress and overtime fatigue. 

Wellness programs also fit in here, by building an expectation that employees have experiences outside the workplace to help them maintain distance between work and home. This allows employees to be more productive and positive members of the workforce, and reduces overtime costs.

Create a positive workplace culture

This is all about preventing toxicity in the workplace and fostering a workplace culture that encourages and engages employees, preventing the occurrence of unexcused absenteeism. This can be done by:

Key takeaways

The causes of absenteeism vary depending on a number of factors, including the business, industry and time of year. Ergo, your costs of absenteeism also vary.

Absenteeism, when interrogated, can reveal underlying issues in your organisation that make the workplace undesirable for employees, driving up costs, turnover and disengagement while decreasing productivity. Identifying the trends in employee absences allows businesses to improve their workplace and its productivity, improving their bottom line.

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