Heera Training & Management Consultants

eNewsletter October 2007

Dear Everyone,
Hi! And how are you all? Firstly, may I take this opportunity to wish all my Muslim friends ‘Selamat Berpuasa’ and hope that all of  you will get lots of good tidings and blessings in this holy month of Ramadhan. The highlight in the month of September was the HRDF conference, where I gave a presentation entitled, “Coaching and Mentoring – A Strategic Tool for Effective Leadership” which was very well received. I was informed that a total of over 1,200 participants took part in the conference making it the largest conference in Malaysia in terms of attendance. Otherwise on the training front, it has been relatively quiet which has allowed me to put in some hard work on my book.     
This month I would like to talk to you about a perennial problem in organizations which is the problem of sick leave. Most of us do not realize it but sick leave constitutes a major cost factor in most companies. A greater problem however is the abuse of this sick leave system i.e. staff, although perfectly healthy feign sickness and take a day or two off on sick leave. An informal survey on my part with my training participants revealed that they believe that at least 50% of sick leave in organizations is not justified.

From a cost viewpoint therefore companies are losing a lot of money to this factor. Let us do a simple calculation to see the frightening costs.
Let’s say there is a manufacturing company with a total workforce of 1,000, of which 700 are direct factory workers. Each worker has a certain amount of productivity per day. A simplistic way to calculate this in manufacturing companies would be total output over a certain time period divided by total number of workers. In service industries it could be total collection over a certain time period divided by total number of workers. For the purpose of my argument, let’s say that it is an average of US 300/ (this is a very simplistic calculation as obviously different people at different levels of the hierarchy will have different productivity rates i.e. the CEO as compared to the toilet cleaner. It also differs in different industries and organizations). Let’s also say that the factory loses 100 man days per month due to sick leave. Hence the total financial sum lost directly will be as follows:
100 days (sick leave per month) X 12 (months per year) X US 300/ (productivity loss per day) = US 360,000/ (this in my view would be a conservative figure). On the basis that 50% is not justified, then the organization would have lost US 180,000/ for nothing!! In Australia for example, unscheduled absences that are not due to illness are estimated to cost Australian employers more than Australian 7 billion a year in lost productivity and disruption (Wood, Zeffane, Fromholtz, Fitzgerald, Organizational Behavior, 2006)
The above costs are direct costs. There will also be many indirect costs such the cost of medical consultation, the particular individual being paid his or her salary but not doing the work for that day, the unseen and intangible multiplying effect i.e. when one person is not around it can have an effect on other people’s work. There may also be overtime costs. Hence the total cost of one day of sick leave for one employee will be productivity cost plus all these intangible costs which can amount to a significant figure.
Organizations must therefore take pro-active measures in order to reduce these unseen costs. Some of these measures, both positive and coercive could be as follows:

  1. Wellness programs and wellness/health education for all employees.
  2. Provision of facilities which can enhance the health of employees, like sports facilities, gym etc.
  3. Solve the root causes of de-motivation in the organization. This is usually one of the major reasons for sick leave abuse.
  4. Compile statistics of sick leave ranging from individuals to departments and publicize it. This might serve to embarrass the individuals who abuse the system. As for department statistics, this might induce supervisors or heads of departments to play a bigger role in reducing these costs. It can also be given as one of their work goals/objectives.
  5. Have an incentive program. A large retailer I know has an incentive program where each employee at the shop floor will be given US 30/ per month if she/he does not take sick leave, is not late and does not take unpaid leave. The US 30/ is meager compared to what can be lost if he/she takes sick leave (especially if it is not justified).
  6. Communicate the costs of sick leave openly so that employees are aware of the financial repercussions of their actions.
  7. Habitual sick leave takers can be sent for a full medical check up to ensure that the organization is aware of their medical status. After which only sick leave taken from a designated medical clinic (to prevent abuse) will be recognized (this can only be enforced if it is made part of the organization’s HR policies).  

Abuse of sick leave will be a perennial problem but this should not stop organizations from taking decisive action to minimize it. Cost savings is everyone’s responsibility and in the current volatile business environment, these cost savings will assist greatly to make companies more competitive.

Thank you very much for taking the time to read this.  I do hope I have given you all something to think about, especially your HR departments.

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Heera Singh
Principal Consultant
HEERA Training and Management Consultancy
HP 0126083708