How Your Time-Off Policy Can Cut Costs and Improve Productivity

Having a clear and generous time-off policy will allow you to better budget for both planned and unplanned absences. You'll also have a more engaged, loyal and productive workforce.

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Having a clear, concise and generous time off policy in place will allow your business to better budget for employees' planned absences as well as cut costs associated with unplanned absences. You'll also have a more engaged, loyal and productive workforce.

Kronos recently released study, the Total Financial Impact of Employee Absences survey, explores the many residual effects that employee absences have on an organization, including how they affect co-worker and supervisor productivity; the use of replacement workers and overtime to cover absences; direct and indirect costs of paid time off; and the importance of policies and procedures to manage employee absences.

The research, commissioned by Kronos and conducted in collaboration with the Society for Human Resource Management (SHRM), was conducted online in the spring of 2014 by SHRM, and a total of 1,280 organizations responded.

Reducing Workplace Stress

The study results show that the number-one cause of workplace stress is inadequate staffing, which can lead to lost productivity, an unsatisfied workforce and higher turnover, as well as higher costs, says Joyce Maroney, director at the Workforce Institute, a division of Kronos.

Employee absence appears to affect workers' colleagues the most, as perceived co-worker productivity loss ranged from 24 percent in Europe to 40.3 percent in Mexico, while perceived supervisor productivity loss ranged from 15.7 percent in the U.S. to 26.0 percent in Mexico, according to the study.

  • 69 percent of respondents say unplanned absences add to workload
  • 61 percent say it increases stress
  • 59 percent say it disrupts the work of others
  • 48 percent say it hurts employee morale

"All workers need time off for a variety of reasons -- from vacation time to relax, sick time to recover and time needed to address the unexpected emergencies of life. However, the impact that absences can have on co-workers is a factor that should not be overlooked when examining the impact of absenteeism.

"By accurately tracking absences and the trickle-down effect they have on the entire business, organizations can improve productivity and minimize compliance risk while addressing issues that may increase the rates of absence to improve team cohesiveness and morale, " says Maroney.

So, what are the hallmarks of a well-planned, effective time-off policy, and how can you improve on your own if it doesn't measure up?

Make It Generous

Paid time-off and paid leave are a major benefit for employees, and should be generous enough to allow for almost any situation that should arise, says Maroney.

"This is an employment benefit that drives trust, that drives engagement, which can then increase productivity and reduce turnover," says Maroney.

"When employees feel they can have an adult conversation about work-life balance and come out feeling that their employers care about them and what happens outside the confines of the office, that has the effect of making the employee more willing to work harder, more productive, more engaged," she says.

What about unlimited time off policies, like those in place at organizations like Veracode, Best Buy and Netflix? Craig Bryant, founder and product manager at Kin HR, says in this article on the company's Website that while the idea behind unlimited time off is sound, in practice, without a clearly articulated policy, employees are often left with greater stress, longer hours, greater burnout -- and your company's got a turnover problem.

"With no constraints or guidelines for how time off works, employees tend to not consider it as part of their compensation and as such won't use it. That means longer hours, less time spent decompressing and ultimately higher churn," says Bryant.

A time-off policy, no matter how lenient, is a key to a successful organization, according to Bryant. Having clearly articulated strategies in place and a method for communicating about time off means better communication overall and a greater sense of shared responsibility.

"If a company doesn't care about getting its team out of the office, what other aspects of work life don't they do a great job at? Companies that don't track time off balances probably aren't tracking it on a calendar either. That means uninformed decisions about when it's best for team members to be away from work, and that means missed deadlines and poor resource planning," he says.

Make It Flexible

Depending on your industry, you should consider offering remote working options, flexible work schedules, job-sharing and other ways that employees can make work fit in with the rest of their responsibilities. But of course, advises Maroney, first make sure your industry supports these types of arrangements and that you won't be putting your organization in legal jeopardy by doing so.

"First, you need to follow the lead of unions, employee organizations, and federal and state statutes, or be open to fines or sanctions, which can be a major cost," she says.

Especially in industries like healthcare and finance, not following compliance regulations can be a major cost center, especially if you're found to flaunt regulations and are subject to fines and sanctions.

"Even in areas that aren't under compliance scrutiny, there are federal mandates like the Family and Medical Leave Act that guarantees worker protections, and you have to make sure you're meeting those," Maroney says.

"When it comes to your employees, communication is key in figuring out how to develop a consistent and fair scheduling and time-off policy. This means you have to ask them to weigh in on what their priorities are. Especially in areas like manufacturing that may not follow traditional 9-to-5 workdays and instead run on a shift schedule," says Maroney.

Make It Fair

Fairness is one of the key tenets for a successful time-off policy, says Maroney, and making sure a time-off policy is fair for all employees goes a long way toward navigating tricky issues around managing absence and cutting costs.

"Most of the survey respondents said they struggle to address patterns of absence around Fridays and Mondays -- that makes sense, and to some extent that's unavoidable, but you have to address the impact on coworkers by making sure policies are applied fairly, "says Maroney.

You don't want other workers feeling like they have to pick up the slack because one employee isn't pulling their weight. "If you have one employee who consistently calls in sick on Fridays or Mondays, their coworkers are going to notice because they'll be picking up the slack, and they'll be disgruntled. 'Wow, doesn't anyone else notice that this is happening? It's not fair -- they don't care about me,'" Maroney says.

Even with a solid time-off policy, there may be instances where you must address deeper attendance issues and let go of the underperforming workers in favor of those who don't abuse your time off policies, she warns.

Make It Automated and Measureable

You can't manage what you can't measure, so having a time-off tracking and approval system is of utmost importance. Many organizations allocate a specific number of days to employees for both planned and unplanned absences as well as offering paid holidays, bereavement time, time to fulfill civic obligations like jury duty and the like, which can make budgeting much simpler.

"If you set out the same number of days for each employee to take sick time, vacation time, to attend jury duty and also offer things like floating holidays, it's much easier to budget overall. While you can't necessarily make up for the cost of lost productivity, impact on coworkers or missing project deadlines, it's at least a baseline for being able to estimate costs and plan for them," says Maroney.

Employee absences carry hidden costs that significantly affect an organization's productivity and revenue -- in fact, 75 percent of respondents perceived absence has a moderate to large impact, according to Evren Esen, director of survey programs with SHRM.

"The more accurately employee absences are tracked and managed, the more effectively organizations can monitor, plan, and budget for this expense. The impact to the bottom line of the business can be substantial, making it pertinent that organizations have a strategy to effectively track the costs associated with employee absence," Esen says.

Though it may seem counterintuitive, offering a generous, flexible and easily tracked time-off policy can actually lead to greater employee engagement, productivity and loyalty. The more employees feel their employers understand and contribute to a healthy work-life balance, the greater their loyalty and the lower their stress levels, which makes for a very happy workforce.

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