Applying the Numbers to HR

When employers think of “accounting” for human resources, they usually consider wages and salaries, payroll taxes, workers comp costs, and health and insurance benefits. These are all significant issues in your business expenses, but there are other areas that should be analyzed and used in management decisions.

Consider the costs to your company when an employee is absent:

1. Lost wages/salaries (when there is paid sick leave)
2. Benefits payments
3. Premium pay for temporary help
4. Premium pay for overtime work
5. Salaries and benefits for supervisors’ time spent on absenteeism problems
6. Under-utilization of facilities
7. Substandard production (quantity and quality)
8. Increased inspection costs

 While not all of these costs may apply to your business, we all know the impact on both employees and owners when absenteeism of one or more employees becomes chronic. You may choose to terminate the employee, but then there will be a new set of costs to consider. It is likely to be more cost effective to determine the cause of the problem and find a solution.

Primary causes of employee absenteeism include boring jobs, stressful jobs or working conditions, supervisory leadership style or an unsafe work environment. If the situation involves several people, you might consider a company wide attitude survey and a review of exit interview information to help uncover the roots of the problem. If the problem is confined to one individual, candidly discuss the issue to discover the cause.

Having identified the causes of the problem, you need to do a cost/benefit analysis for the proposed solution. For example, if the cause is stressful working conditions, the solution(s) could be:

• hiring additional full or part time staff;
• additional job training for the employee(s);
• redesigning the work process to make it more efficient;
• changing supervisors;
• developing a flex time schedule to accommodate the particular needs of the employee(s).

Each of these solutions has a cost which should be balanced against both the cost of absenteeism and the cost of replacing the employee. The costs become more significant when more than one employee is involved, because the solution can mean a change for the whole organization.

While applying numbers to employee behaviors may seem odd at first, it is really very much like the cost analysis you might do for other parts of your business - new equipment, new location, marketing, or tax planning. A solution to a problem is not effective if the costs outweigh the benefits or if it fails to produce the desired result.

The numbers can help you evaluate both the cost and effectiveness of the solution. The REAL benefit comes from finding viable solutions that result in more productive employees.

Noal Hebert
Tessera Strategies
1130 20th Street
Santa Monica, CA 90403

Phone: 310-804-2382
Fax: 310-829-4822

noalhebert@eaarthlink.net