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Retail stores have to fight hard for every penny they make. Shoppers are always looking for a bargain, competition is fierce and margins can be razor thin.

To make it in this environment, retailers have had to wring costs out of the system by putting pressure on their suppliers and by carefully managing inventory.

"Most employers, believe it or not, don't even recognize they have a problem," says Dan Lyons, national account manager at Liberty Mutual's Group Markets operating unit. "They really don't know how big of an absence problem they have," he says.

In retail, employers don't have to worry that absences will shut down an assembly line, but employee absences can cause a significant deterioration in customer service, poorly stocked shelves, more overtime payments and, most importantly, lost sales.

"Retailers are very focused on the productivity of their store and their sales from an in-store perspective and the role absenteeism plays into that equation," says Bradley F. Johnson, national director, disability operations, at Sedgwick Claims Management Services Inc. "If an employee is absent from work or unable to get to work, that can have a direct correlation in terms of a lost opportunity to service a customer and lost sales."

By using an integrated absence management program, retailers can improve the productivity of their work force and reduce the medical costs, as well as the costs that can arise from overtime or expenses related to hiring replacement workers.

An integrated absence management program also can help companies manage all of the various leave programs available to employees. It can make the process better for employees and help to improve the ability to get employees to return to work.

One of the big reasons for turning to integrated leave programs is that the cost of employee benefits, and employee medical expenses in particular, have skyrocketed in recent years, Lyons says.

"So employers are trying to get their arms around their total spend in any way they can," he says. "Returning an employee to work has a profound effect on the medical spend dollars for that disability," he says.

In addition to the impact on medical costs, employee absences also have a big impact on productivity.

"Most employers stop at, 'What are the medical costs and savings?' " says William Molmen, general counsel at the Integrated Benefits Institute. "But what they don't understand is that the medical costs and savings drive a lot more in costs than just the medical side. They drive the absence and disability payments, plus they drive the lost productivity," he says.

"And lost productivity is going to be generally more than the medical payments," Molmen says.

"Part of our benchmarking program is to educate employers about what's really at stake when medical treatment is involved," he says. "And it's not just a cost to be shifted or a cost to be borne, it's a cost to be viewed as an investment in work-force health and productivity," he says.

Management of employee absences is no simple task, though. Employees can be out for a variety of reasons. There are workers' comp, long- and short-term disability, family medical leave, sick leave and military leave.

Each of these different leave programs comes with its own set of rules, regulations and legal compliance issues. Failure to properly administer the Family Medical Leave Act, for instance, can result in fines or lawsuits.

With an integrated absence management program, usually administered by an outside vendor, employers can also make sure they are in compliance with all of the various legal requirements associated with workers' compensation and leaves under the FMLA.

"The No. 1 issue behind what's driving it is increasing costs, principally driven by medical expenses," Lyons says. "The second thing is a growing realization on the part of employers as to the true costs of absence and disability," Lyons says.

"The third thing is many more employers are grappling with the administrative issues associated with family medical leave and other types of leaves and are looking to outsource some of those services or internally consolidate (the administration of them)," he adds.

The idea of outsourcing the administration of these leaves and other benefits makes sense for retailers because store managers are stretched thin and may not have the time or the resources to effectively manage employee leaves.

"The store manager's job is to make the store profitable," says Darryl Hammann, disability development director for Sedgwick. That store manager doesn't have the time to calculate whether an employee qualifies for leave under FMLA or not.

"The managers of all these retailers, their focus is on customer service and profitability, and they need to have an outsource vendor who is an expert in this area," says Scott Rogers, regional director, for the retailing industry group at Sedgwick.

There can also be problems for corporate headquarters if stores in different locations apply different standards when managing employee leaves.

Under an integrated program, employees are able to call just one hotline or log on to the computer and report their problem. A case manager is then assigned to that employee and follows up to make sure the individual's case is being handled properly.

This could include coordination with the employer, medical professionals, benefits managers and the employee over the type of leave, the length of time for the leave and conditions for return to work.

"One of the ideas behind integration is making the process more easily understood by the employee," says Karen English, a partner at Spring Consulting in Boston. "The more simplified the process, the more likely the employee is going to have a good experience with the process and they will come back to work," she says.

"If the process is smooth, if they know what they need to do, if they have a main point of contact, it can be a much better process and get them back to work faster and . . . make the liability for the company less," she says.

Information about the employee's leave can then be processed and provided to store managers who are under pressure to make sure the store is properly staffed, running smoothly and meeting its sales targets.

"One of the things that most store managers want to know is why are people off work," Lyons says. If someone is unable to come to work, store managers want to know why, how long will that person be out and will a replacement worker be needed?

With that information, the store manager is then in a better position to schedule the staff and manage absences.

"In the retail sector, the employer needs to know as much as they can--when is the person going to be gone?--so they can call in for a replacement worker" English says.

A store like a Home Depot, for instance, would be able to adjust employees' schedules in advance if it knew about an absence in advance.

"When that process is in place, the supervisor can be more informed about the timing of an absence, so they know when an employee is planning to come back instead of it just being open-ended," English says.

Retailers, however, are just beginning to take steps to integrate and better manage their workers' comp, disability and other leave policies.

The number of requests for proposals in the last year tied to retailers looking at disability and leave management has probably increased 30 percent to 40 percent, Sedgwick says.

"The retailers are behind the manufacturing and telecoms," says Sedgwick's Hammann. "Other programs are more mature."

One reason retailers have tended to overlook leave management is because of the unique makeup of their work force.

The retail sector uses a lot of part-time employees, and there is a lot of turnover. As a result, many employees may not qualify for certain benefits, such as short-term and long-term disability--programs that are typically offered to full-time employees.

Although many retail employees do not qualify for benefits, there still are certain groups that do. In some subsectors, such as grocery stores, the workers are often unionized and are therefore entitled to more benefits than other retail employees.

Many retailers, however, are unable to quantify the cost of disability and other leaves on store productivity and profits.

"Right now they probably would have a hard time quantifying for us a baseline," Hammann says. "It's a little easier on disability if they have a provider doing the disability," he says. "On leave administration, they don't know what they don't know."

Because retailers don't have a lot of hard data to illustrate the impact of disability and other leaves on profits and store performance, it is a problem that they may be tempted to ignore.

And when they try to understand their absence problems, they find they don't have the data that they need at their fingertips.

"We encourage companies to look at where are their absences," Lyons says. "How many days lost do they have? Who are these people? What gender are they? How old are they? What are the diagnoses associated with those absences? And that's regardless of whether it's comp or nonoccupational. How do I compare with my peer group, and how do I compare with where my organization has been in the past?" Lyons says.

Companies that move to a managed or integrated absence management program often see some fairly significant savings. Because of the lack of data, however, it can often be hard to measure the impact on lost time and productivity.

"When we moved clients in from an unmanaged environment into a managed environment, typically within 12 months or so, we're seeing savings in the 8 percent to 10 percent range from a benefits-provided perspective," Johnson says.

Case studies from the Integrated Benefits Institute show that minimizing unnecessary absence and disability presents the greatest opportunity for savings. For some case-study participants, the disability cost savings amount to as much as 40 percent to 50 percent, though savings of that magnitude were more likely to be associated with programs that went from unmanaged to integrated.

When it comes to getting an employee back to work, retailers have an advantage over companies in other industries. That's because there are often a variety of tasks that can be done by employees returning from disability.

"If you think about a store like Costco, they have people stocking the shelves, they have people doing the registers, they have people checking the ID and in greeter positions, so that you can almost accommodate almost any level of physical exertion within a store and you can rotate jobs," Johnson says.

Retailers also have been using their experience with workers' comp to try to design safer stores and help employees return to work.

The approach used for workers' comp is now becoming much more common for disability leaves.

"They're learning a lot from their casualty programs, particularly their comp programs, about getting people back to work and minimizing lost productivity," Hammann says.

As a result, retailers have some of the best return-to-work programs around, Sedgwick's Rogers says. "For the most part, they can take anybody back to work, and they've used that very effectively on the casualty side. And they're starting to bleed that into the nonoccupational side as well," he says.

The main goal, of course, is to get employees back to work at the right time.

"Because the process is being managed, instead of just waiting for them to come back on their own," English says, "they usually come back to work sooner and at the right time."

PATRICIA VOWINKEL lives in New Jersey.

April 15, 2007

Copyright 2007© LRP Publications