Chair of the board or CEO, are you interested in profitable business?

In the previous blog, I asked whether work ability should be managed and said that managing it separately from other leadership tasks doesn’t seem logical to me. Today, I’m not changing my mind, but I’ll say that indeed, work ability should be managed, and from the top level.  

In this blog, we talk about money and profitable business. Keep on reading to find out why.

I asked ChatGPT to list the items included in the personnel costs of the budget. This is the answer I got (you can skip this part if you’re already familiar with it):

"Personnel cost budgeting includes all costs related to employees’ salaries, benefits, and other staffing activities. Generally, personnel costs include

• Salaries and bonuses
• Pension insurance contributions (retirement funds)
• Social security contributions
• Holiday pay and holiday bonuses
• Occupational health services and other benefits, such as lunch allowances, sports benefits, phone allowances, and other employee perks
• Training and development
• Recruitment costs
• Tools and materials
• Travel expenses
• Employee insurance and pension plans
• Insurance paid by the employer, such as accident insurance or other employee protection insurance

Additionally, personnel costs can also include other workplace-related expenses, such as employee well-being services or company-sponsored leisure activities."

Now, let’s get to the "why" part of the blog

Let’s continue the list above. And now we look at costs related to employees’ work ability—costs that are rarely budgeted or systematically managed.

I'll break them down to categories:

1. Costs Related to Sick Leaves

Typically, the cost of a day of absence in Finland is considered to be €370 per day. The direct cost to the employer for lost work depends on the length of the sick leave and the length of fully paid sick leave, defined in the work contract. Today's challenges are many times linked to harmful stress, causing sleeping problems or mental health issues, which often means a longer sick leave. In addition to direct costs from leave of absence, there are indirect costs such as customer satisfaction and retention.

• Let’s assume that your employees are entitled to 30 days of paid sick leave
  • The first 10 days, during which Kela (Finnish social insurance institution) does not pay sick leave allowances, are most costly for the employer. The cost for 10 days of absence is about €3700. If the next absence is because of a different illness, the full responsibility of the employer for the salary payment starts from zero.
  • If an individual employee has recurring absences for various reasons, totaling 30 days, the cost to the company is about €11000. If two employees are frequently ill for various reasons, the cost to the employer would be around €22000.
• If the sick leave for the same reason continues more than 10 days and remains paid, after the 10th day, the employer will cover approximately €110 per day after Kela's sick leave allowance, totaling €2200 for 20 days. Altogether, 30-day sick leave for the same reason costs approximately €6000.
  • If two employees, for example, need to be 30 days off due to issues with harmful stress and mental health, the costs of lost work are around €12000. If you're lucky enough to get a substitute, their salary will naturally be added to this cost. If no substitutes are found and the team at work needs to take more tasks, there’s a risk that they start to be stressed out and the number of burnouts and the related costs will increase.
• If your project/service is delayed due to employees’ absence, a delay penalty stated in the contract may start to accrue. Even if there’s no financial "penalty", the promise you have made to the customer will likely be either delayed or the quality will suffer, or both. This increases the risk of losing your existing customers. And as we know, it is a lot more difficult to get a new customer than keeping the existing one.  
• Good to know for everyone paying taxes. In 2023, Kela (Finnish social insurance institution) paid social insurance allowances totaling €4.8 billion, of which about €1 billion went to sick leaves and €1.8 billion to medications. According to Kela’s statistics, in 2023, 1 in 10 Finns used antidepressants, meaning more than 600 000 people. Over 100 700 people received sick leave allowances due to mental health issues. The world’s happiest nation is not the world’s healthiest nation.

Still, very important note! Illness can catch anyone, almost at any time, and no one wants to fall ill. What matters at the workplace is that everything possible is done to ensure that work is not the one causing illness or that work-related issues aren’t the "straw that broke the camel's back." And in case of illness, it is important to offer support to the employee in case. 

2. Costs due to presenteeism

The situation, where employee is at work but not 100 % of normal due to illness or other reasons, is called presenteeism. Presenteeism leads to decrease in productivity. For example poor sleep causes memory and concentration problems for a human being, which reduces performance in tasks that are cognitively demanding. In Finland, one-third of the population suffers from temporary sleeping problems, and about 12% has long term problems with sleep. And one of the most common causes for sleep problems is harmful stress.

Annual costs related to presenteeism are estimated to be between €1600 and €2500 per employee.

• If you have 20 employees, the estimated cost of presenteeism is around €32000 - €50000 per year. Presenteeism cannot be zero as no one is always 100% productive. If there is a lot of presenteeism  at workplace, and the solution to fix  lack of needed productivity is to hire additional staff, the costs are naturally even higner. Therefore, harmful work-related stress, leading to presenteeism, should be minimized as much as possible.

3. Costs related to the loss of motivation

Employees mainly want to succeed at work and feel valued, be seen and accepted within their work community. The sense of meaningfulness, competence, feeling of control, opportunities to influence, and a sense of supporting a bigger community are important sources of intrinsic motivation.

I haven’t seen estimates how much the loss of motivation costs, but I suspect the costs are at least as much as those of presenteeism. Motivation also needs to be managed, but because each of us are motivated by slightly different things, managing motivation requires a model that takes individual differences into account. But what includes everyone, the killer of the motivation is constant hassle without possibility to get things done. Unfortunately this is not a rare in modern work.

4. Occupational health care costs 

The more occupational health services are used to treat symptoms, illnesses, or long-term loss of work ability, the higher the costs. On the other hand, the earlier the employee turns to seek professional help, the shorter the recovery time, at least what comes to mental health problems. The role of the manager and coworkers is very important — build an environment of psychological safety at work, be aware, ask how your employee is doing, do your best to decrease stress coming from work and when needed, suggest a visit to occupational health care. And as the work is changing so rapidly, develop work processes and job roles as on-going activity to ensure that work is not causing or increasing harmful stress.

• If you have a service based contract with your occupational health care service provider, the costs will show up directly in the next month's invoice.
• If you use health insurance or a fixed fee occupational health contract, a high amount of visits at occupational health care will result with delay when the prices are increased to meet with the real costs.

5. Disability pension related costs for larger employers

If your company belongs to a pension insurance company’s contribution category system, only one young employee going on disability pension can raise your contribution category, resulting in higher pension contributions in the coming years.

6. Costs related to workplace and commuting accidents

For commuting accidents the employer does not have that much influence, but the former, workplace accidents must be fully addressed and managed to prevent them. 

• Do you regularly assess workplace risks, including accident risks? 
• Have there been any accidents at your workplace? 
• Do you report and learn from potential or near by accidents? 
• How about the costs associated with accidents? 

7. Costs related to replacements

Lastly, something not always considered in terms of work ability but not uncommon at all: an employee who is overwhelmed by work decides to leave.

It’s been estimated that the cost of replacing an employee is equivalent to three months' salary. The costs include training and time spent on orientation. For example, if an expert has a monthly salary of €4,000, the cost of their resignation and replacement would be around €12,000. In case you use an external recruiter to help you, that will increase the cost.

• If the employee leaving your company is a person with highly unique skills or has a lot of silent know-how, you cannot even calculate the loss in money wise.  

In customer service type businesses, there’s also the risk that customers will follow the "trusted person" when s/he leaves.

Impact of work ability management at the national level in Finland

Guy Ahonen, an emeritus professor at the Finnish Institute of Occupational Health, estimated back in 2016 that Finland has a serious, extensive, and very costly issue, lack of wellbeing at work,  visible through sick leaves, disability, and disengagement. According to Ahonen’s calculations, the costs are at least €25 billion annually. In 2023, the cost estimate ranged from €25 billion to €40 billion, depending on the calculation method. For comparison, in 2023 the Finland national budget was about €80 billion.

How is work ability managed in your company? Do you need help?

Managing work ability effectively is a high value monetary operation. Managing work ability systematically by ensuring fluent work without causing harmful stress must be an essential part of business management, where top management is responsible for ownership, commitment and necessary resources.

The points listed above could easily cost your company a six-figure sum—costs that will be taken off from the your business's results. To cover these costs, you really need to make a lot of additional sales.

And vice versa, when you succeed with this, it increases your cash flow and your profitability. 

It’s hard to calculate the very exact euros related to work ability risks, but as the monetary impact is anyways so huge, you need to be aware of these risks and manage them. Hyvää Elämää provides a work ability management tool to you to help top management being successful with this.

Call me or send an e-mail and let’s see what is your situation and how we can help you to succeed in managing work ability, thus improving your business results!

With workability regards
Anna-Mari