Time Off Cuts Into Bottom Line

February 13, 2001 (PLANSPONSOR.com) - Time-off and disability programs cost employers 14.3% of payroll, on average. And that's just the direct costs, according to a new survey.

Employers responding to the survey estimate that the additional indirect costs of replacing absent workers can be as much as half of the direct costs.

While more than half (58%) believe they should measure the indirect costs of those absences, just 16% have tried to do so according to the survey by HR consultant William M. Mercer and sister firm Marsh.

For example, an employer with 5,000 employees earning an average of $40,000 a year, 14% of pay amounts to $5,600 per employee – a total of $28 million – while indirect costs represent another $14 million drag on the bottom line.

The total direct cost of unscheduled absence plans represented 3.9% of payroll in 1999, an adjusted 5% increase from 1998 levels.  Nearly two-thirds (65%) of the survey respondents are concerned about controlling unscheduled absences, where indirect costs tend to be more substantial than for planned absences.

Unscheduled absence plans typically include:

  • sick days
  • salary continuance
  • short- and long-term disability
  • workers’ compensation.

The study of 433 employers did find that 60% of responding employers believed that time-off and disability benefits help attract new employees, and one in 10 said that shortfalls in their time-off and disability benefits actually hindered recruiting.

More than half of larger employers, those with 5,000 or more workers, are focused on reducing current costs, compared with only a third (35%) of those with 500-4,999 employees.  On the other hand, the smaller employers are somewhat more focused on controlling future costs (41% versus 37% among larger employers).

Nearly a third (31%) of large employers are taking steps to coordinate medical care with occupational and non-occupational disability management, while only a fifth (21%) of mid-sized employers are doing so.

Almost half (45%) of larger employers have already integrated their short- and long-term disability benefits with one carrier or administrator.