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Cost of Absence: A Finance Mystery Solved by HR 

26 October 2020 4 min read

hr and finance calculating the cost of absence together

HR and finance teams are often regarded as night and day in businesses. On one hand, you have HR, eager to please their people and build a better place to work. On the other hand, you have finance, pulling the purse strings, and ensuring that business cash flows are healthy and sustainable.

Both are essential for businesses to operate smoothly, but oddly, the two rarely come together unless it is to discuss salary reviews and budgets. However, there is one other area in which they have a shared interest – absence, and more specifically, the cost of absence.

Working out how much absence is costing your organization can be a mystery to finance. This article will investigate why knowing your cost of absence is important, how you can most efficiently calculate it, and why finance needs HR to solve the case.

Why does the cost of absence matter?

Sickness absence is inevitable, yet it costs the UK economy over £18bn in lost productivity annually, a pretty hefty sum.  Every company across the UK has contributed to this and any CFO or Finance Director will be wincing and wondering how much absence is costing their business exactly and why. The reality is that absence could be costing your business thousands of pounds a year and you never even knew it!

The problem is that working out your cost of absence is often a mystery unless you have the right data. That is where HR comes in. Given the right tools, HR can be monitoring and tracking absence and using it to calculate how much absence is costing your business. But that’s not always the case, with over 69% of organisations having no way of tracking the cost of absence within their business according to edays’ research.

How to calculate the cost of absence

There is a simple calculation you can use to calculate the cost of absence:

(Sick pay x Hourly pay rate x Length of working day) + (Percentage of absentees covered x hourly rate for replacement staff x Length of working day) = Cost of absence 

It is no surprise that many organizations do not have the resource to calculate the cost of absence looking at the complexity of the equation above. This becomes even more complex when many HR teams use paper and spreadsheets to perform complex absence calculations.

How to reduce the cost of absence

Here are 3 ways to ensure you can easily and accurately calculate how much absence is costing your organization, and how you can reduce that cost.

1. Ditch manual methods

We’re all human, and it’s only natural that we make occasional mistakes when inputting data and making calculations, whether it’s due to rushing or fatigue. This makes manual absence tracking methods such as paper and spreadsheets, not the most accurate or reliable. So even if you manage to perform the complex calculation above through manual means, it is not necessarily right, you could still be way off finding out what absence is actually costing your business.

On top of this, the same principle applies to annual leave entitlement and sick pay calculations. But in these cases, it also leaves your business open to unknown financial liability, a CFO’s nightmare.

2. Embrace automation

There are many reasons why automating your absence management processes is more efficient and can save you money in the long run. In terms of working out your cost of absence, it can ensure that it is automatically calculated for you. This both eliminates the risk of human error mentioned above and drives efficiency by saving your HR team precious time that would be otherwise spent performing the calculations themselves. A win-win scenario!

3. Know the reasons behind unplanned absences

Absence matters to your organization and your employees. So how can you start better understanding it? By tracking the reasons behind unplanned absences. As your data around the reasons for unplanned absence start to build up, you will begin to notice patterns and trends. This will put you in a great position to address them. For example, if a large proportion of your unplanned absence is due to mental health issues, you can identify that and put a support network in place for them.

The perfect way to ensure you are hitting all the points mentioned above and solving the mystery surrounding your cost of absence is to implement an absence management system. Absence management systems have the functionality to calculate how much absence is costing your business and can identify patterns and trends in unplanned absence, actively ensuring you are kept up to date with it and can make recommendations on how to reduce it.

Click here to book a free, personalised demo of edays

Katrina Bennett People Director at edays
October 26, 2020

Katrina is edays' own People Director with significant UK and international experience in delivering people strategy and value-adding HR solutions across a range of organisations and sectors (including Arriva, Boots, Rolls Royce, the utility and charity sectors). Katrina has over 20 years of experience in Human Resources and is CIPD qualified.