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February 13, 2001
Study Finds Cost of Time-Off, Disability Programs Significant
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YORK - Direct costs of employer time-off and disability programs average 14.3 percent of payroll, a new study finds.

Participating employers estimate the additional indirect costs of replacing absent workers can be as much as half of the direct costs. More than half (58 percent) of the 433 employers surveyed believe they should measure the indirect costs of such absences, yet only 16 percent have attempted to do so.

"While most employers have focused on understanding and managing the cost of their health care plans, the cost of their time-off and disability programs has been overlooked and even misunderstood," says George Faulkner, a William M. Mercer, Inc. consultant and one of the study's authors. "Yet, those costs can be significant as well."

Faulkner notes that for an employer with 5,000 employees earning an average of $40,000 a year, 14 percent of pay amounts to $5,600 per employee or a total of $28 million. Including the indirect costs of covering for absences with other employees - extra overtime, temporary workers, and outside contractors - adds another 7 percent of payroll, or $14 million.

The total direct cost of unscheduled absence plans - sick days, salary continuance, short- and long-term disability, and workers' compensation - reached 3.9 percent of payroll in 1999. Beyond any increases due to payroll adjustments, these costs increased by 5 percent from 1998.

Nearly two-thirds of participants (65 percent) say they are concerned about controlling unscheduled absences, especially since their indirect costs tend to be more substantial than those for scheduled time-off plans.

The study found that six in 10 employers believe time-off and disability benefits help attract new employees. Another one in 10 said the inadequacy of their time-off and disability benefits actually hurt their recruitment efforts.

"In what is becoming a more challenging business environment, employers need to strike the right balance between limiting the costs of their time-off and disability plans and providing benefits that appeal to employees and meet their legitimate needs," Faulkner said.

The study was conducted by human resources consultant William M. Mercer, Inc. and Marsh, a risk and insurance services firm, both units of Marsh & McLennan Companies, Inc.
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