The Hidden Profit Drain: Managing the Cost of Employee Absence Phil Lacy Integrated Benefits Practice Leader Royal & SunAlliance
Introduction Occupational and non- occupational lost time costs employers over $200 billion annually. Most employers spend between 8% and 10% of payroll on employee lost time.
Lost Time Defined Any absence from work due to injury or sickness whether on or off the job.
Case Study National Employer Thousand Employees Service Industry –70% professional, administrative, technical and clerical –30% operations Payroll: 3.5 Billion
Case Study Expectations Determine total lost time costs Create a baseline Identify individual cost drivers Educate senior management on the problem
Income Replacement Benefit Costs Short Duration Absence Costs –Sick Leave –Salary Continuation –State Mandated Disability –Short Term Disability Long Term Disability Pension Disability Workers Compensation (indemnity)
Other Related Benefit Plan Costs Group Health Plans Group Life Insurance Plans Workers Compensation (medical) Retirement Plans –Pension –Post Retirement Medical –401(k)
Other Non-Benefit Costs Disability Portion of FICA Internal Administrative Costs External Vendor Costs Lost Productivity
Total Cost Analysis $51.2 $87.5 $3.5 $22.2 $129.3 $293.7 $74.8$11.4$12.2 $30.5 Inc. in STD $381.9 $29.5$58.7 Inc. in STD $54.9$2.2 $129.3 Inc. in STD $16.0 $4.3$.8 $118.6 $15.1 Income Replacement Medical Claims Cost Administrative Cost Other Costs Lost Productivity Cost Subtotal: Costs which can be directly impacted Short Duration Absence LTDWork CompTOTAL (figures expressed in $000)
Royal & SunAlliance $1,938,247 $3,275,454 $107,016 $531,820 $1,384,462 $7,236,999 $2,838,734$143,567$756,920 $331,941 $614,100 $11,511,973 $1,397,647$2,934,413 $84,852 $1,338,450$474,689 $2,427,012$428,450 $1,146,600 $226,266$34,398 $4,681,511 $259,457 Income Replacement Medical Claims Cost Administrative Cost Other Costs Lost Productivity Cost Subtotal: Costs which can be directly impacted Short Duration Absence LTDWork CompTOTAL (figures expressed in dollars)
Case Study Summary 77% Attributable to Short Duration Absence 31% Attributable to medical costs while on disability 15% Attributable to Long Term Disability and Pension Disability 8% Workers Compensation Costs 34% Lost Productivity Costs
Lost Productivity Costs Temporary Workers Replacement Workers Overtime Recruiting of Replacement Employees Extra Management Time Employee Burnout/morale Decreased Revenue
Cost Study Summary 7.2% of Total Payroll Excluding Lost Productivity Costs 10.9% of Total Payroll Including Lost Productivity Costs Lost Time Cost Per Employee Per Year = $4,243.
Cost Analysis 24% of Medical costs incurred during paid time away from work 80% of Medical costs incurred annually by same disabled (Pareto) group 60% of income replacement costs are for 5 days or less
Current Environment Current Problem –Lost time costs represent almost $400 million annually due to multiple administrative processes, lack of coordination between health care and income replacement delivery systems and lost productivity.
Proposed Environment Opportunities –Implement a total absence management program that utilizes best practices in disability and absence management.
Proposed Environment Implementation Requirements –Re-engineer internal administration of lost time programs –Consistent administrative approach to Occ and Non-occ lost time –Coordinate the delivery of health and disability plans –Identify better methods for tracking and utilizing data –Make the reduction of incidence and duration of disability a corporate priority
Proposed Outcomes Estimated annual savings of $8 to $22 million from non-occ absences Estimated annual savings of $.5 to $2 million from occupational absences Implementation costs estimated between $2.5 and $5.8 million Ultimate ROI of 3:1
Summary Lost Time Costs = 10% of Payroll Created by Fragmented Occupational and Non-Occupational Programs Benchmarking Creates Awareness and Understanding of the Drivers of Cost Integrated Benefits is a Tool to Drive Down the Cost of Lost Time