The survey of 536 US for-profit and nonprofit employers was jointly conducted in the summer of 2004 by Mercer Human Resource Consulting and Marsh, both operating units of Marsh & McLennan Companies (MMC), a global professional services firm. Survey respondents include employers with as few as 100 employees as well as organizations with more than 10,000 workers. The average number of employees covered per respondent is 6,914; overall, more than 3.7 million employees are represented.
Under a paid time-off (PTO) plan, employees typically accrue, or bank, a certain number of hours or days to use for time off during each month or pay period. While not all paid time-off plans include time for incidental absence/sick days, most (86%) do.
By removing the distinction between incidental absence/sick days and vacation, employees have greater flexibility in managing their time off, and supervisors need not wonder whether an absent employee is using a legitimate sick day. With fewer time-off categories, PTO plans also enable easier tracking and administration. They are most prevalent in the health care industry: 86% of the 167 health care employers surveyed have a PTO plan. With “24/7” staffing requirements, these employers need to promote scheduled, rather than unscheduled, absences, and not differentiating between types of short-term absences appears to help.
When it serves as the only source for incidental absence/sick days, a key advantage of a PTO plan is a limit on the total number of paid absences for brief illnesses, personal emergencies, and vacation, unlike plans in which employees are given a separate pool of sick days, or full salary continuation for several months. To prevent long illnesses from depleting the paid time-off bank, employers generally also provide a separate short-term disability (STD) plan that pays for absences due to illness or injury lasting beyond a week.
Even among those respondents who still have separate plans for incidental absence/sick days, 70% now permit use of some or all of the days for reasons other than an employee’s own illness, such as the care of an immediate family member or other personal emergency. This greater flexibility is driven in part by state law, such as exists in California, which in 2004 enacted a law requiring employers to allow employees to use up to 50% of sick leave benefits for the care of family members.
Nearly a fourth (24%) of respondents gave employees a chance to buy and/or sell vacation or PTO days, compared to just 15% in 2000. In 2004, 14% permitted employees to sell days, 7% permitted them to buy days, and 3% permitted both buying and selling. These options are appealing both to newer employees, who might want more time off, and to longer-service employees who cannot use all the time to which they are entitled.
The cost of time-off
The total cost of time-off and disability programs averaged 14.2% of payroll in 2003, including 10.2% for vacation/PTO plans, fixed holidays, and personal days/floating holidays, and 4.0% for incidental absence/sick days, short- and long-term disability, and workers’ compensation. Thus, for an employee earning $40,000 annually, about $5,700 was paid for time away from work.
“Because most absence benefits come out of the payroll budget, the real cost of time-off is often misunderstood or given little attention,” says George Faulkner, absence management practice leader for Mercer Human Resource Consulting and coauthor of the survey. “While pay for time not worked is the direct cost of these programs, the indirect costs - for extra headcount, overtime, or temps or other replacement labor - can be substantial, but hard to quantify. When you consider lost productivity or revenue resulting from work not done, unplanned absences are particularly costly.”
Controlling the direct cost of absence was a top priority for many survey respondents (45%), followed by reducing the impact of absence on operations (41%).
What’s driving disability costs?
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 27% of the employers surveyed, and decreased among just 5%. Short-term disability incidence rates increased for 32% of respondents during the same period, while only 8% reported a decrease in incidence rates.
“With health care costs high and getting higher, more employers are focusing on improving employees’ health in the specific areas that affect them most. Many of the leading health problems can be addressed with sound, clinically based health management initiatives and disability management techniques,” says coauthor Dr. William Craig of Marsh Workforce Strategies.
Most respondents reported no change in their incurred workers’ compensation costs from 2002 to 2003. But for 19%, incurred costs decreased by an average of 28% (for reasons other than a change in exposure). Respondents continued to drive accountability through cost allocation and to pursue program performance measurement. Half of all respondents have implemented a formal return-to-work program; among respondents with 10,000 or more employees, 69% have done so.
Increased focus on family and medical leave administration
Federal law and comparable state legislation require employers to provide job-protected unpaid leave to employees for their own or a family member’s serious illness or for the birth, adoption, or foster-care placement of a child. Survey results suggest that employee utilization of family and medical leave (FML) is on the rise. In 2004, 53% said they had experienced an increase in FML utilization in the past year, up from 45% in 2003 and 40% in 2002. Improving tracking and administration of these statutory benefits was a top priority for 41% of participants.
Most respondents (84%) say they are experiencing difficulties with FML administration. The top five administrative problems reported by survey respondents are managing intermittent leave (64%), recordkeeping/tracking use of leave (57%), coordination with other time-off plans (31%), timely notification of employee rights (26%), and clinical management (23%). Not surprisingly, a growing number of employers are outsourcing FML administration: 16% of respondents now outsource some or all FML cases, up from 11% in 2003 and just 2% in 2000.
Copies of the fifth annual Employers’ Time-Off and Disability Programs survey cost $250 and may be purchased at www.mercerhr.com/ustimeoffsurvey or by calling 212 345 2451. Journalists may request a copy from Stephanie Poe (stephanie.poe[at]mercer.com).
Marsh, the world’s leading risk and insurance services firm, has 38,000 employees and annual revenues of $5.9 billion. The firm provides advice and transactional capabilities to clients in over 100 countries. Marsh is a unit of Marsh & McLennan Companies (MMC), a global professional services firm with approximately 59,000 employees and annual revenues exceeding $10 billion. MMC also is the parent company of Putnam Investments and Mercer Inc. MMC’s stock (ticker symbol: MMC) is listed on the New York, Chicago, Pacific and London stock exchanges. MMC’s Web site address is www.mmc.com. Marsh’s Web site address is www.marsh.com.