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The Hidden Profit Drain: Managing the Cost of Employee Absence

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.

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The Hidden Profit Drain: Managing the Cost of Employee Absence

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  1. The Hidden Profit Drain:Managing the Cost of Employee Absence Phil Lacy Integrated Benefits Practice Leader Royal & SunAlliance

  2. 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.

  3. Lost Time Defined • Any absence from work due to injury or sickness whether on or off the job.

  4. Case Study • National Employer • 80 - 90 Thousand Employees • Service Industry • 70% professional, administrative, technical and clerical • 30% operations • Payroll: 3.5 Billion

  5. Case Study Expectations • Determine total lost time costs • Create a baseline • Identify individual cost drivers • Educate senior management on the problem

  6. 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)

  7. Other Related Benefit Plan Costs • Group Health Plans • Group Life Insurance Plans • Workers Compensation (medical) • Retirement Plans • Pension • Post Retirement Medical • 401(k)

  8. Other Non-Benefit Costs • Disability Portion of FICA • Internal Administrative Costs • External Vendor Costs • Lost Productivity

  9. Total Cost Analysis Short Duration Absence LTD Work Comp TOTAL (figures expressed in $000) Income Replacement $51.2 $12.2 $11.4 $74.8 Medical Claims Cost $15.1 $87.5 $16.0 $118.6 Administrative Cost $3.5 Inc. in STD $.8 $4.3 Other Costs $22.2 $30.5 $2.2 $54.9 Lost Productivity Cost Inc. in STD $129.3 Inc. in STD $129.3 Subtotal: Costs which can be directly impacted $293.7 $58.7 $29.5 $381.9

  10. Royal & SunAlliance Short Duration Absence LTD Work Comp TOTAL (figures expressed in dollars) Income Replacement $1,938,247 $756,920 $143,567 $2,838,734 Medical Claims Cost $259,457 $3,275,454 $1,146,600 $4,681,511 Administrative Cost $107,016 $84,852 $34,398 $226,266 Other Costs $531,820 $331,941 $474,689 $1,338,450 Lost Productivity Cost $1,384,462 $614,100 $428,450 $2,427,012 Subtotal: Costs which can be directly impacted $7,236,999 $2,934,413 $1,397,647 $11,511,973

  11. 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

  12. Lost Productivity Costs • Temporary Workers • Replacement Workers • Overtime • Recruiting of Replacement Employees • Extra Management Time • Employee Burnout/morale • Decreased Revenue

  13. 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.

  14. 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

  15. 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.

  16. Proposed Environment • Opportunities • Implement a total absence management program that utilizes best practices in disability and absence management.

  17. 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

  18. 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

  19. 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

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