Calculation of Absenteeism Rates

By Johnny Johnson – CEO of absenteeism management specialists, CAM Solutions

Many employers do not pay enough attention to absenteeism, both the measurement and affects of absenteeism and its control. Almost all employers understand that high absenteeism rates have a negative affect on their business but the monetary effect of abnormally high absenteeism is usually not quantified.

AIC Insurance specialises in the underwriting of the direct cost of absenteeism and proactively managing the time that employees are not at work. Through contact with over 60 South African companies, we have found that in most instances employers are not aware of their absenteeism rate or they have not measured the absenteeism rates correctly. The old adage “You can’t manage what you don’t measure” applies and we have found that in the cases where there is uncertainty concerning the level of absenteeism there is almost always a low level of management control accompanied by a high level of absenteeism.

It is also common for employers, who have calculated their absenteeism rates, not to quantify the monetary cost of the absenteeism. This is particularly important with regard to unplanned absenteeism, which is mainly sick absenteeism and absence without leave (AWOL). The absenteeism rate multiplied by the basic earnings will provide management with the direct cost of absenteeism.

The indirect cost of absenteeism is often overlooked. This includes the cost of replacing the absent employee in critical positions, possible overtime payments to these replacement workers, as well as the affect the absenteeism has on workforce levels, medical aid costs, group life and disability premiums. We estimate that the indirect cost of absenteeism is at least 200% of the direct cost of absenteeism at normal absenteeism levels. This factor will be different for various industry types and will also increase when the absenteeism rate increases.

The general lack of focus on absenteeism is possibly due to the fact that the costs of absenteeism are not shown separately on management reports. This could be due to the fact that the amount incurred for paid absence is usually grouped with all staff costs. This includes the unproductive portion as well as the cost of replacement workers and overtime. The indirect costs are more problematic and it is very seldom that employers quantify the monetary affect that absenteeism has on the indirect areas such as production volumes, quality and morale.

Steps to manage and control absenteeism
It is important for any employer to follow a focussed approach and it is recommended that the following steps be considered when developing a plan to manage and control absenteeism.

Develop a company attendance policy and communicate this to all employees. The importance of attendance should be stressed and the policy should be communicated to all employees as a means of developing a culture of attendance. A balance between being firm and fair is suggested.

Evaluate and modify company policies and procedures to ensure that the correct framework exists within which to manage and control absenteeism.

Design a detection, monitoring and reporting system which will provide accurate and reliable data for reporting on absenteeism. This should ideally be based on information extracted from the time and attendance system, which is then filtered until final absenteeism data is obtained.

Calculate absenteeism rates and break these down into the various forms of absenteeism - both planned (annual leave, study leave, training leave, paternity, maternity leave, etc) and unplanned (sick leave, AWOL, family responsibility etc). It is recommended that these are incorporated into the monthly management reporting system.
Determine the appropriate level and department that will be responsible for absenteeism management. The best results are achieved when the departments where unplanned absenteeism has the greatest negative affect assume direct responsibility for managing absenteeism. The Human Resources Department should play a support role only - by assisting with setting policy and providing guidance for counselling and disciplinary procedures.

Prepare a detailed study to determine the affect that absenteeism has on all costs, determine appropriate factors and apply these to the direct absenteeism rates to obtain the total cost of absenteeism for the entity. This can be done by department or more accurately per employee.

Over time, develop benchmarks for certain absenteeism indicators and measure employees against these indicators.
Based on the broad results and individual profiles determined over a reasonable period of time, establish the causes of high absenteeism. The causes could be due to, among others things, social problems, occupational risks, employee morale, poor management and control systems, health problems, poor working conditions as well as delinquent employees.

Formulate attendance management guidelines which will focus on:
Policy
Ongoing monitoring and reporting
Introduction of employee assistance programmes

Calculation of sick absenteeism rates:
The calculation of sick absenteeism rates can at times be complicated with various methods evolving. As a rule, the rate should be based on productive lost time as a percentage of total available productive time for a certain period.

We recommend using the following formula:
A = B / C

Where:
A = Absenteeism rate for the period
B = Total number of mandays lost due to absenteeism in the period
C = Total number of working mandays available in the period

And where:

C = D x E

D = Total employees planned to work in the period
E = Number of available working days in the period

Where shifts are worked the calculation is more accurate if the “days” in the above formula is changed to hours.

The calculation and accumulation of the mandays/manhours lost due to absenteeism and the total planned working mandays/manhours per working period or shift will improve the accuracy of the measurement.

In addition the calculation should be performed per department to provide further indications on where possible interventions are required.

The higher sick absenteeism rates in the lower income groups are due largely to their poor living conditions and also reflects the type of work, mainly manual, that these employees are involved with. The level of income is also an indication of the level of responsibility. We have found that employees with lower levels of responsibility have higher levels of absenteeism.

Sick Absenteeism in Large Companies versus Smaller Companies:
Small employers are more successful at limiting sick leave abuse than the larger companies.