The hidden business costs of employee absenteeism and disengagement

Empty office showing employee absenteeism

When most owner/operators of mid-sized companies consider financial or operational improvements to their business, they look in the usual places: cash flow management, supply chain and process optimization, effective cost cutting measures that won’t impair the organization’s ability to deliver products and services. Their instincts are invariably correct. These are all key factors in the success or failure of a business, particularly one focused on growth. But there are other issues, often overlooked because they’re more challenging to spot, that are just as problematic—namely, employee absenteeism and disengagement.

The problem with absenteeism is that it requires proof of a negative—identifying who’s not in the workplace and what their absence could be costing the company—to properly quantify its impact. What we do know is that absenteeism and disengagement are a nightmare for CEOs who need the very best out of their people every day. If your organization operates in a highly-competitive sector such as technology, manufacturing or is a customer-centric business that relies on strong service as a brand differentiator, for example, having employees who are only partially committed to its success is a non-starter.

The latest data shows that absenteeism is a fast-growing problem across virtually every industry in Canada.

According to Statistics Canada, private sector organizations lost an average of nine days per worker in 2019, compared to 14.6 for the public sector (we’ll leave discussion of the public-private absenteeism discrepancy for another day). That was an increase from 7.8 lost work days for private sector workers in 2015.

At the same time, a 2014 workplace study by global business consultancy Morneau Shepell found that 52 per cent of employee absences are not due to illness (either physical or related to mental health). Rather, the study found that “non-illness related absence (absence that is not related to either a mental or physical health issue) is more likely where workplace stress was reported by the employee, and where the employer did not support mental wellness.”

Why?

Absenteeism and so-called presenteeism—where workers are present in the workplace, but fall far short of peak productivity—are typically a by-product of a compromised organizational culture and high degrees of employee disengagement. When organizations lag in their enforcement of workplace policies and procedures around employee conduct and performance, when they fail to recognize the accomplishments of their employees and fail to address issues such as workplace harassment, widespread stress and burnout, staff will find any reason not to come into the office.

To be clear, it’s often structural issues that impede employees’ determination to go all out for their employer. This is a common challenge in sectors such as construction and manufacturing, where absentee rates tend to be higher and engagement more challenging to foster and maintain. As organizations—both public and private—have asked more of their employees with only marginal increases in pay in recent years, it’s no surprise that engagement levels have suffered. Put simply, if you don’t love where you work—and compensation plays an outsized role in job satisfaction—you’re more likely to find any excuse not to go to work.

Here’s why this all matters to your business.

As the Statistics Canada figures underscore, absenteeism is a major risk to innovation, productivity, job performance, bottom-line results and even workplace safety (which can result in fines and legal challenges). And it’s not only the cost of covering an employee’s absence or lackluster productivity that companies need to manage.

The expense of covering for an employee who is chronically absent, to train their replacement and manage the administration necessary for onboarding, legislative compliance and the like, can be burdensome, to say the least—all of which are a direct drain on an organization’s finances. That’s not even taking into account the overtime pay that will be shelled out to workers who do show up and need to pick up the slack for their missing colleagues. And unlike growth-driving expenditures such as capital or research and development investments, these are sunk costs that will never be recovered.

Our work with mid-sized organizations often finds gaping balance sheet holes that could be easily fixed by strategically addressing the root causes of absenteeism. By investing in better management training, employee recognition and team-building programs, career development, process optimization and basic day-to-day improvements that cost relatively little, organizations could actually save money in the long run.

Of course, the first step is recognizing the impact that employee absenteeism and presenteeism are having on your company. Without that acknowledgement, the necessary next steps to correct simmering cultural and productivity challenges will never happen.

George Grignano, Co-Managing Partner

George Grignano
George Grignano

905-946-1300, x. 248
ggrignano@krp.ca