What is the cost of sick leave?

When an employee reports sick, it comes at a cost for the company, whether for a single day or a more extended period.

In this piece, we take a thorough look at an employee’s direct and indirect costs on sick leave.

The cost of sick leave

The cost of sick leave in the UK

According to a recent survey from Wrightway Health, the average UK employee loses 6.4 working days per year due to sickness or illness-related underperformance. This study was conducted in 2019 – so pre-pandemic – but still recorded an increase from the previous year.

When calculating this data into Great British Pounds, the economic loss account for almost £92 billion – a staggering amount. Fortunately, it is not an expense that lands on only a few companies to pay but across every company that employs people. Still, it all adds up to severe amounts when crunching the numbers, but luckily businesses can reduce a big chunk of their sick leave costs with a bit of effort.

All it takes is a proactive and targeted approach to reduce sick leave.

You can read much more about how you can reduce sick leave in your company in the section “Preventing sick leave” in this piece, “Everything you must know about taking sick leave in the UK”.

Costs linked with sick leave – direct and indirect

When calculating the cost of sick leave, you look for the total amount of company expenses. It is not enough to simply look at wage costs alone but at the complete picture of all indirect costs.

For example, productivity typically declines in the period leading up to sick leave. Additionally, there will be an adjustment period where productivity is lower when returning from taking time off. It may be due to the employee needing to get back to their usual self and simply find the rhythm again.

During the actual sick leave, you must also consider any expenses for temporary assistance, agency assistance, overtime pay to other employees, etc.

What is the usual amount of sick leave? Learn more here.

The direct cost of sick leave

The direct cost of sick leave covers the following:

  • Wages of absent employees

Whether you are entitled to sick leave depends on your employment contract. You can learn more about this in our piece on sick leave in the section: “Sick leave and pay.”

Source: Health & Safety Executive

Costs

Calculating the cost of sick leave: Direct costs

Wage costs – the direct cost of sick leave – are relatively easy to calculate. Thus, it is also easy to figure out what a company can save if they succeed in reducing sick leave.

If we take the average UK worker as our starting point, we must get hold of Emma (or Andrew) Taylor, who has an average monthly salary of £2.466.

To make it easier, let’s assume Emma takes six days of sick leave each year rather than the average 6.4. This is a sick leave of 2.4%, which amounts to direct costs of wages of £710,4 per year:

((£2.466 x 12)/100) x 2.4 = £710.40

If a business has 100 employees that follows Emma’s average, the yearly direct cost of sick leave amounts to £71.040:

100 x £710.40 = £71.040

If Emma’s employer manages to reduce sick leave for the average employee from six days to five per year, it will automatically mean significant cost savings.

Five days of sick leave per year amounts to 2% sick leave. Hence, the yearly cost per employee is £592:

((£2.466 x 12)/100) x 2 = £592

For Emma’s employer, this means a yearly cost of £59.200.

100 x £592 = £59.200

In rough numbers, this is a yearly saving of almost £12.000.

£71.040 – £59.200 = £11.840

Indirect costs of sick leave

The indirect costs of sick leave – the hidden costs – covers a variety of different factors:

  • The time it requires for a replacement to learn a new role and become productive
  • The possible reduction in service and product quality
  • Reduced efficiency in the team
  • The loss of business and – possibly – reputation
  • The cost of recruiting replacement staff
  • The resources that cover training and support to other staff.
  • The cost of over-time that may apply for colleagues to cover
  • Time spent by the manager on hosting different meetings and discussions regarding sick leave and prepping new and former colleagues on changes.

Source: Health & Safety Executive

Costs

Calculating the cost of sick leave: Indirect costs

A large chunk of the indirect costs of sick leave is difficult to price, while it is also difficult to fully understand all the indirect costs.

Below, we provide a few examples of some indirect expenses for an average UK business if they had Emma on the payroll.

Example #1 – “the cheap one”: Reduced efficiency in the team
When a co-worker is on sick leave, productivity can see a slump in the rest of the team. This is often the case when long-term sick leave is in play. It can directly affect the mood of employees when their co-worker leaves on sick leave. Usually, you can see yourself at risk of ending up in a similar situation.

Let’s assume that Andrew falls victim to long-term sick leave. His colleague, our average Emma, who makes roughly £11 an hour, becomes mentally affected by this and – consequently – 10% less productive for two months. In indirect costs, Andrew and Emma’s employer lose £493 in productivity loss.

(£2.466 x 2) – 10% = £493
10% of her monthly pay over two months

Example #2 – “the costly one”: Including the resources spent to find a replacement for the person on sick leave:
Andrew’s manager Charlotte, who is now searching for his temporary replacement, earns more than Emma and Andrew. She makes £3.580 a month, an average manager’s salary. Calculating the hourly wage, we are looking at roughly £20,50.

When searching for Andrew’s replacement, Charlotte spends a lot of time finding candidates and picking the right fit for the organization. It can look as below:

Task Hours spent Cost in GBP
Writing a job add
1 hour
£20,50
Sorting through applications
3 hours
£61,50
Reading applications and picking out candidates for interviews
4 hours
£82
Jobinterviews
1,5 hours x 6 applicants
£184,5
Picking out applicants for 2nd round
3 hours
£61,50
2. round of interviews conducted with another manager
9 hours (1,5 hours x 2 managers x 3 applicants)
£184,50
Negotiating and finalizing a contract and informing other candidates
4 hours
£82
Introduction for the new hire
8 hours
£164
Three months learning period – 50% productivity average
0,5 x £2.466 x 3 months
£3.699
Total
£4.539,5

So, when asking yourself, “what is the cost of sick leave?” the total amount must always be taken into account, as it can shed more light on the importance of reducing it – both from a human and financial perspective.

Costs

Costs linked to musculoskeletal disorders

Musculoskeletal disorders are among the most frequent causes of long-term sick leave, alongside stress and depression. On average, those who suffer from musculoskeletal disorders took around 18,4 days off work to recover.

As such, you can increase employee well-being and help reduce costs if you put in the effort to be proactive on musculoskeletal disorders.

You can learn more about getting started in our piece on office ergonomics.

Bring down sick leave

What can I do to reduce sick leave in my company?

If you want to reduce sick leave in your company, there are numerous initiatives you can take.

For example, start with a workplace assessment and get the tools and processes to help you structure the efforts to fight the company’s sick leave.

An essential factor to consider is the preventive efforts you can take on. There are several possible initiatives here, but we have put together a few specific tips that you can use in this article.

When sick leave occurs due to mouse arm disorders, ergonomic products such as computer mice and keyboards can be a great asset. We have written a lot of information about this, which you can read more about in this article.

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