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 Hewitt Associates.

The 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.

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 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.

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.

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