Impact of Employer Size on Absence and Disability
By Eric Lake
North America Sales Executive
Employers are increasingly concerned about Family and Medical Leave Act (FMLA) and short-term disability (STD) absences, in part because their indirect costs are higher than their direct costs.1 The major components of the indirect costs reflect lost productivity in the workplace.
Most research into absence and disability incidence, duration, and cost has examined such factors as industry, employer abilities in leave management, and STD plan design. ClaimVantage has analyzed data for another area not commonly examined: how the cost and impact of FMLA and STD absences vary with employer size or the number of eligible employees.
Comparisons between different-sized employers are based upon average or median figures, depending upon the data provided by the source. Our sources include:
- Disability Management Employer Coalition (DMEC)2
- Integrated Benefits Institute (IBI)3
- Employer Measures of Productivity, Absence and Quality (EMPAQ)5
After analyzing the most recent data and studies by these industry-leading sources, we found significant differences in STD and FMLA incidence, duration, and cost based upon employer size. Generally, larger employers face higher costs, incidence, and duration per employee than do smaller employers. This also holds true in some specific industries such as healthcare, insurance, food, and chemical manufacturing.
Our findings suggest that while it is useful for employers to benchmark themselves to their peers in similar industries, it is also useful to compare their FMLA and STD experience to non-peer employers of similar size. Employer size correlates with several factors that may affect benefit utilization and cost, such as: “richness” of STD and other income replacement benefits, employee awareness of and access to benefits, employer self-insurance, and collective bargaining units representing employees.
Employer Size and FMLA
Our analysis revealed that the size threshold for 20,000 lives demonstrates noticeable differences in employer experience both for FMLA and STD. Generally, FMLA and STD incidence, duration, and cost increased as the employer size grew.
We chose the 20,000 threshold because (especially with the FMLA) the number of leaves/claims was similar above and below the threshold although the number of employers in each category differed greatly. This was useful for data comparability in our first presentation of a surprising new trend.
We plan to do further analysis of the impact of employer size on STD and FMLA experience for particular industries, and for multiple employer size thresholds. Based on our initial work, particular industries may have size ranges that could be described as high-impact zones, rather than a simple straight-line trend. It would be a mistake to assume, based on this initial analysis, that only employers with 20,000 or more employees are significantly affected by the impact of employer size on STD and FMLA experience.
Figure 1: Employer Size and FMLA Experience
Over 20,000 Median
Under 20,000 Median
|Concurrent leaves per 100 eligible employees||5.6||4||40%|
|Intermittent leaves per 100 eligible employees||2.4||1.7||41%|
|Denied leave requests per 100 eligible employees||2||1.6||25%|
|Lost workdays per leave||16||13||23%|
|Lost workdays per intermittent leave||6||4||50%|
FMLA Leave Incidence
The median incidence of both concurrent and intermittent leaves is 40% and 41%, respectively, higher for employers with more than 20,000 employees than for employers with fewer. Concurrent leaves are usually those in which an income replacement plan (such as sick leave or STD) is being used by an employee at the same time as the FMLA. Larger employers tend to have more and richer income-replacement plans. Larger employers also tend to have formalized employee communication strategies that enhance employees’ understanding of what benefits are available to them.
Intermittent leave is a significant cost driver in some industries. This is especially true in environments with challenging working conditions, low wages, round-the-clock operations, and other stressors. What role does size play in leave incidence?
- The likelihood of representation by collective bargaining units increases with increasing employer size. Employees in bargaining units are often more aware of their time-off benefits, and more likely to fully utilize available sick, disability, and leave benefits.
- Larger employers also have bigger and more sophisticated human resource (HR) departments, deeper employee benefit plans, and more options for paid and protected absence.
FMLA Lost Workdays
Lost workdays/leave is 23% higher for employers with more than 20,000 employees than below this threshold. Lost workdays per intermittent leave is 50% higher for larger employers. Perhaps their more sophisticated HR plus more accurate reporting also contribute to the difference; smaller employers may not document all leaves.
We believe the most likely explanation for these findings is that, since the incidence of concurrent leaves among the larger employers is also higher (but under 20% difference threshhold), this issue is partially a result of the larger employers’ employees being more likely to take FMLA leave along with an income replacement program such as STD. Employees taking FMLA leave without income are more likely to return to work sooner.
Strategies for Managing FMLA
It is important to note that these recommended strategies apply to employers of all sizes, but our analysis indicates that the incidence and duration of FMLA leave have a bigger impact on larger employers.
- Know your numbers. If your program is insourced, use software that provides the kind of data from which decisions can be made. If you outsource or co-source FMLA administration, ensure that your administrator can provide meaningful data and analytics and can interpret them for you.
- Review labor relations. Larger employers that have collective bargaining should ensure that members receive accurate advice about the FMLA from their bargaining unit. If needed, provide union stewards with FMLA data reports to ensure they understand the impact of FMLA absences on their work groups and on the company as a whole. Although bargaining units tend to support benefit use, excessive leave use may be viewed as abuse by coworkers.
- Focus on benefit communications. Review benefit booklets and communications to ensure that messaging to employees is not encouraging the use of FMLA leave except for legally permitted reasons.
- Centralize FMLA administration. This applies to all large employers whether the FMLA is outsourced or managed internally (often aided by enterprise software). Only one group or person should have ultimate responsibility for FMLA decisions or relations with the vendor.
- Document processes clearly and consistently. Large employers risk misunderstandings unless all FMLA processes are clearly documented and consistent across all units of the organization.
- Make training a priority. Training supervisors and managers to recognize FMLA and Americans with Disabilities Act (ADA) requests is difficult or extremely difficult for 51% of employers with more than 20,000 lives and 60% of employers with between 5,000 and 19,999.6. Employers should provide brief but proven effective FMLA/ADA training programs for managers and supervisors. Recognizing the importance of this area, DMEC is developing new resources to help employers train supervisors and managers on the FMLA and the ADA. Some vendors also provide training resources.
Employer Size and STD
Figure 2: Employer Size and STD Experience
Over 20,000 Median
Under 20,000 Median
|Median new claims per 100 covered lives*||5.4||4.3||26%|
|Median new claims per 100
covered lives, pregnancy excluded
|Payments per closed claim||$2,981||$2,458||21%|
|Calendar year lost calendar days per 100 covered lives||323.3||253.8||27%|
STD Claim Incidence
When measuring new claims per 100 covered lives (CL), we see that the employers over the 20,000 threshold have 26% higher claim incidence. If we remove pregnancies from this measurement, the difference increases to 30%. This is a significant cost differential to include in the pricing for an STD plan, and a higher STD incidence may drive a higher long-term disability incidence as well, notes Brian Kost, Senior Director of Workplace Possibilities at The Standard Insurance Company.
Most larger employers have self-insured STD, whereas fully insured STD is more common among smaller employers. Larger employers can provide more direction to their STD administrators and should do so more often.
STD Cost and Durations
Again, we find that the over 20,000 life group has worse experience with STD:
- Median payments per closed claim are 21% higher, and average payments per closed claim are 29% higher.
- Median claims reaching maximum benefit duration are 40% higher.
- Calendar year lost workdays per 100 covered lives are 27% higher.
The above data speak to the fact that STD absences among larger employers last longer and are more expensive than those for smaller employers. We propose some reasons for this:
- Larger employers tend to have better benefit packages. Better STD benefits permit employees to stay off work longer.
- An STD benefit is usually a percentage of the employee’s salary, and larger employers have historically tended to have higher salaries.7
Strategies for Managing STD
Administration of STD plans is outsourced or co-sourced by 61% of employers.8 In both insured and self-insured plans, the cost and impact of STD are felt very strongly. But when we turn our focus once again to employer size, we need to emphasize that employers of all sizes should consider these recommended strategies, even though claim cost, duration, and incidence affect larger employers to a greater degree.
- Know your numbers. This important strategy for FMLA management (above), is also important for STD management.
- If you have an on-site clinic, use it for STD and other non-occupational absences. EMPAQ found that employers with onsite clinics had fewer than five lost workdays per employee compared to 20 lost workdays per employee for those without an onsite clinic (or with minimal access to the clinic).9
- Develop an RTW program that starts in STD. Based on best practices findings of DMEC, EMPAQ, and Mercer, this program should include:
- Early intervention
- Fixed point of responsibility
- Stay-at-work capabilities10
- Outcomes reporting
- ADA capabilities
- Transitional work
If you work with a carrier, ensure that its RTW program has all of these features. If you manage STD internally, create or enhance your RTW program as above. If you already have an RTW program for workers’ compensation, negotiate with your Risk Department to expand it to STD.
Size Differences in Specific Industries
This analysis has provided a few of the findings available for the differences in FMLA and STD by employer size. More analysis is needed, especially in the ways that employer size affects STD and FMLA experience inside specific industries. An example of this for STD is below:
Figure 3: Specific Industries – Employer Size and STD Costs3
Avg. Payment per Closed Claim
Avg. Payment per Closed Claim
|Hospitals (SIC #806)||$4,420||$3,414||29%|
|Food Manufacturers (SIC #20)||$5,106||$3,371||51%|
|Insurance Carriers (SIC #63)||$8,062||$5,042||60%|
|Chemical Manufacturers (SIC #28)||$9,552||$6,698||43%|
Managing FMLA and STD has always been a challenge. Studies over the last decade have further demonstrated that STD has large direct costs, and both STD and FMLA absences have even larger indirect costs (such as overtime, replacement staffing, training, and lower customer service). Now we see that employers over the 20,000-employee threshold are experiencing these costs and impacts at higher rates than employers below the threshold, based on data from outsourced programs.
The increased cost pressures on larger employers remind us that the basics of absence management are still paramount for cost control. The strategies for managing FMLA and STD listed above both begin with the call to know your numbers. In the light of this analysis, that means to know your numbers in relation to peer employers in your industry, and to other employers of similar size in other industries. Larger employers should thoroughly review and integrate their FMLA and STD programs, especially if they are outsourced.
- Kronos Incorporated, Mercer. The Total Financial Impact of Employee Absences. June, 2010.
- DMEC. 2017 DMEC Employer Leave Management Survey White Paper. 2018.
- Integrated Benefits Institute. Health & Productivity Benchmarking Data Base. Data Year 2016
- Mercer. Survey on Absence and Disability Management. March, 2017.
- National Business Group on Health, Truven Analytics. EMPAQ Insights Report. 2015.
- DMEC. 2017 DMEC Employer Leave Management Survey White Paper, p. 19. 2018.
- A. Caruso. U.S. Census Bureau. Statistics of U.S. Businesses Employment and Payroll Summary: 2012. February, 2015.
- Mercer. Survey on Absence and Disability Management, p. 32. March, 2017.
- National Business Group on Health, Truven Analytics. EMPAQ Insights Report, p. 3. 2015.
- National Business Group on Health, Truven Analytics. EMPAQ Insights Report, p. 15. 2015. Employers with stay-at-work programs had 31 fewer lost workdays per 100 employees per year.