Hewitt study shows companies underestimate cost of leaves of absence

While nearly all larger companies (96 percent) have formal documented leave of absence (LOA) policies, fewer than two in 10 calculate costs associated with them and only one-third track leave utilization, according to a recent study from global human resources outsourcing and consulting firm Hewitt Associates.

The Hewitt study of more than 450 large employers examined companies' policies toward and administration of employee leaves of absence and found that a majority have never implemented monitoring of leave programs, revealing a potentially huge and uncontrolled expense for many organizations.

"In an age where companies are asked to identify and cut expenses wherever possible, it is surprising to find that so few organizations have a sense of how many of their employees are on leave at any one time and how much it's costing them," noted Richard North, absence management strategy leader, Hewitt Associates. "What's really unfortunate is that, because LOA costs remain hidden from management, often bundled with other expenses, such as benefits and labor, some HR leaders may incorrectly view LOA expenses as the price of doing business. We hope this study will serve as a wake-up call that LOA expenses can and must be managed."

According to Hewitt's survey, companies' top three reasons for not tracking LOA costs are lack of resources (34 percent), the issue is not a top management concern (20 percent) and no methodology in place to generate meaningful results (17 percent).

Not surprisingly, 77 percent of companies indicated that their LOA administration practices need to be improved. Nearly 70 percent still use paper records to administer their programs, and only 56 percent have automated any portion of administration or communication. However, those most satisfied with their performance had more centralized systems.

"Once we've worked with clients to automate the tracking and administration of their LOA programs, they typically find utilization rates 20-60 percent higher than they'd estimated and can immediately begin to quantify hidden costs that were hurting their business," added North. "These companies are, in turn, better able to decrease direct and indirect costs, such as overtime and temporary/replacement expenses, and to better manage and reduce time off, increasing performance and productivity and, ultimately, their bottom line."

Nearly one-third of companies (32 percent) report that their companies have total absence management programs in place. These programs, which are relatively new but growing in interest, manage leaves of absence, sick time, short- and long-term disability, vacation time, personal time and/or paid-time-off banks holistically to help reduce employees' overall time away from work. Hewitt has found that the combined cost of time-away-from-work programs often represents 20 percent or more of employer payroll expenses.

Not surprisingly, Hewitt found that the most common reasons for taking leave arise from the Family and Medical Leave Act of 1993 (FMLA), including for one's own serious health condition (46 percent), for the birth of a child (23 percent) and for the serious health condition of a close relative (9 percent). Nearly all surveyed companies (94 percent), however, allow employees to take leaves of absence for reasons beyond those legally mandated, including the fourth and fifth most common reasons for taking a leave -- for one's own (non-FMLA) health condition (7 percent) or for personal reasons (4 percent).

While nearly all employers have formal LOA policies in place, less than one-third consistently follow them, and approximately one-fourth have LOA practices and policies that differ based on collective bargaining agreements, division, length of service, location and exempt/non-exempt status.

"Policy variations and inconsistent application complicate the LOA process and can lead to potential problems such as compliance and employee relations issues," said North. "Employers' administration of LOA is complicated by rapidly evolving federal leave laws, as well as an ever-growing number of state laws. Our survey results show that employers feel increasingly challenged in keeping compliant with these laws, lacking the knowledge, tools and resources to administer their leaves effectively. With services available to help address these concerns, there's no reason HR departments can't take a more proactive stance to remove LOA-related risks and improve their companies' profitability."