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February 26, 2003
Costs Rise for Time-off and Disability Programs
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total cost of time-off and disability programs continues to rise, according to a new survey from Mercer Human Resource Consulting and Marsh Inc. Time-off and disability program costs averaged 15 percent of payroll in 2001, up from 14.6 percent in 2000, the survey found.

For an employee earning $40,000 annually, this means that $6,000 was paid for time away from work. This cost translates into 39 days of absence per employee per year – 27 scheduled days and 12 unscheduled days – up from 38 days the previous year. Unscheduled absences, including incidental absence/sick days, salary continuation, short- and long-term disability, and workers' compensation costs, also rose to 4.7 percent of payroll in 2001, up from 4.4 percent in 2000 and 3.9 percent in 1999.

The survey of 723 US employers was conducted jointly by Mercer and Marsh, both operating units of Marsh & McLennan Companies (MMC), a global professional services firm. The survey respondents included employers with as few as 100 employees as well as employers with more than 10,000 workers. The surveyed plans cover 6,158 employees, on average.

"Because the largest portion of the costs of time-off and disability programs are part of the payroll budget, historically they haven't received as much attention as one might expect," says George Faulkner, an absence management expert at Mercer. "Nonetheless, in an environment where employers are looking for ways to drive down costs, these expenditures are now subject to increased scrutiny."

Controlling the direct cost of absence was a top priority of many respondents (49 percent), followed by reducing the cost of absence on operations (47 percent).

The survey, conducted in 2002, found that average workers' compensation costs increased by 20 percent during 2001, rising to $1.80 per $100 of payroll from $1.50 a year earlier. However, the findings understate the increase in workers' compensation costs because they do not fully reflect the sharp rise in insurance costs that began at the end of 2000 and was exacerbated by the Sept. 11, 2001, attacks, according to the authors of the study.

Many employers have experienced significant increases in the incidence of long- and short-term disability. During a two-year period, long-term disability incidence rates increased among 26 percent of the employers that measured it, and decreased among just 9 percent. Short-term disability incidence rates increased for 33 percent of employers during the same period, while only 10 percent reported a decrease in incidence rates.

The survey found that disability costs (excluding those related to maternity) appear to be driven by four types of conditions – musculoskeletal problems, cancer, stress and depression, and cardiovascular diseases.

The survey also found that many employers have implemented, or are considering, broad-based paid time-off plans. One-third (33 percent) of the employers surveyed provide time-off benefits through a broader plan that combines vacation days with other paid leave. In addition, 4 percent of employers with vacation-only plans intend to convert to a paid-time-off plan within the next year and 16 percent are considering doing so.


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