The Business Case
Absenteeism rates above 1.5% are considered excessive and preventable.
Our goal is to reduce Absenteeism and Turnover rates by 25%. This is realistic and achievable when managers build strong relationships and support employee needs and interests.
Costs of Absenteeism: 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. Daily Pay
Formula for calculating absenteeism costs
If, however, you need a more accurate number, then you might want to use Houtzagers’s formula, which will give you the total cost of absenteeism per employee (ACE) over a defined period of time. Here’s the formula:
ACE = (LH x (WHP + EBC) + SLH x (SHP + SBC) + OC ) / E
This absenteeism costs formula (Return to Work Matters – Calculating absenteeism costs (rtwmatters.org)) takes into account various costs, namely:
- ⦁ LH = Lost Hours. The total number of employee hours lost due to absenteeism for the defined period;
- WHP = Weighted Hourly Pay. The weighted average hourly pay for the company’s various occupational groups;
- EBC = Employee Benefit Cost. The cost of employee benefits per hour and per employee, which amounts to 35% of WHP;
- SLH = Supervisor Lost Hours. The total number of hours lost by supervisors due to dealing with absenteeism;
- SHP = Supervisor Hourly Pay. The average hourly pay for supervisors;
- SBC = Supervisor Benefit Cost. The cost of supervisor benefits per hour and per supervisor;
- OC = Other Costs. An estimation of additional costs among those listed above;
- E = Employees. The total number of employees within the company.
Examples Using the Formula Above for 100, 200 and 300 Employee Companies
- 100 Employee Company with a 2% absenteeism rate and an average wage of $25.00/hour , $8.00 employee benefit, Supervisors wage $35.00/ hour and $10.00 benefit would equal an annual absenteeism cost of $194,250.00
- 200 Employee Company with a 2% absenteeism rate and an average wage of $25.00/hour , $8.00 employee benefit, Supervisors wage $35.00/ hour and $10.00 benefit would equal an annual absenteeism cost of $388,500.00
- 300 Employee Company with a 2% absenteeism rate and an average wage of $25.00/hour , $8.00 employee benefit, Supervisors wage $35.00/ hour and $10.00 benefit would equal an annual absenteeism cost of $582,750.00
Respective savings of 25% absenteeism costs would equal
100 Employees $48,562 Savings
200 Employees $97,125 Savings
300 Employees $145,687 Savings
Costs of Employee Turnover
Costs of Employee Turnover – Replacing entry level employees cost roughly 50% their annual salary, a mid-level employee costs up to 150% of their annual salary and a high-level or highly specialized employee could cost approximately 400% of their annual salary. Simply Benefits. Final costs depend on what formula is used and whether companies include direct (Recruiting agencies, Interview, Ads..) and indirect costs (Overtime, quality issues, loss of productivity..)
Formula for calculating turnover rates
To calculate the monthly employee turnover rate (https://www.brighthr.com/articles/culture-and-performance/staff-turnover/staff-turnover-calculation/ ), all you need is three numbers:
- The number of active employees at the beginning of the month (B)
- The number of active employees at the end of the month (E)
- The number of employees who left during that month (L)
Then, calculate the average (average) number of employees by adding your beginning (B) and ending workforce (E) and dividing by two.
Finally, you should divide the number of employees who left (L) by your average number (average) of employees and multiply by 100 to get your final turnover percentage.
Using this formula here are the costs examples for companies with 100, 200 and 300 employees using these factors
- 100 Employee Company with 100 employees to start, 98 to end and 16 employees who left for a turnover rate of 16.2% with an average annual salary of $40,000 would equal an annual turnover cost of $320,000.00 based on using 50% of salary replacement cost.
- 200 Employee Company with 200 employees to start, 187 to end and 39 employees who left for a turnover rate of 20.2% with an average annual salary of $40,000 would equal an annual turnover cost of $780,000.00 based on using 50% of salary replacement cost
- 300 Employee Company with 300 employees to start, 279 to end and 54 employees who left for a turnover rate of 18.7% with an average annual salary of $40,000 would equal an annual turnover cost of $1.080,000.00 based on using 50% of salary replacement cost
Respective savings of 25% turnover costs would equal
100 Employees $80,000 Savings
200 Employees $195,000 Savings
300 Employees $270,000 Savings
Combined absenteeism and turnover annual savings based on a 25 % reduction
100 Employees $48,562 Savings + $80,000= $128,562
⦁ 200 Employees $97,125 Savings + $195,000 = $292 ,125
300 Employees $145,687 Savings + $270,000 = $415,687
Return On Investment (ROI). These numbers above are just examples, based on average turnover rates and salaries YET represent substantial savings indeed. These potential savings directly impact bottom line profits.
NOTE: Savings could increase significantly if replacement costs are higher!
Value On Investment (VOI). We also encourage businesses to examine and consider VOI . These benefits are often overlooked, but have many positive impacts on success. ROI often have hard metrics attached and can be reasonably measured, VOI on the other hand doesn’t always have metrics and can be difficult to measure but impact success and profits just as much or more….things like morale and engagement, teamwork and collaboration, commitment to company goals, advocacy for the company and brand, new efficiencies and improvements… . . These are not always discussed regarding shareholders review of capital investments but are also very important.