Return to Work: A cost benefit approach for the workplace

Rules and obligations governing return to work are found in human rights

Return to Work: A cost benefit approach for the workplace

Return to work for workers from occupational and non-occupational absences is beneficial for a number of reasons.  Work is central to our social, economic, and psychological well-being.  Absences from work can negatively impacts workplace morale and result in decreased productivity.

For employers, the rules and obligations governing return to work are found in human rights, employment standards, and workers’ compensation legislation.  Specific workplace arrangements are codified in collective agreements.

Employers have developed workplace disability and absenteeism policies and procedures: some of which are administered by external third-party providers. Try as we may, return to work is not, however, exclusively an objective process.  It is laden with subjective considerations and biases because return to work involves people. The purpose of this article is to explore whether cost benefit analysis can assist workplaces with return to work by applying empirical and objective considerations. 

What is cost benefit analysis?

Cost benefit analysis (CBA) is a systematic approach which estimates the strengths and weaknesses of situational alternatives to determine options which in turn allow for the selection of the best problem-solving approach.  A CBA is used to appraise the desirability of a given policy.  Put another way, CBA is a decision-making process which compares the projected or estimated costs, benefits, and opportunities associated with a decision. 

The fundamentals of cost benefit analysis

CBA focuses on four (4) factors.  

  1. Direct costs include expenses to an organization directly related to the issue under consideration.
  2.  Indirect costs include fixed expenses that contribute additional overhead to the business. 
  3. Intangible costs include other business considerations which are more difficult to quantify such as changes in levels of productivity. 
  4. Opportunity costs include lost opportunities that arise for an organization when a course of action is selected over another option.

The application of CBA to return to work

In return to work planning the most significant question to be addressed is when is it best to implement a return to work strategy which is in the best interests of all of the workplace parties?   Insofar as workplaces can quantify direct and indirect costs these factors are helpful in answering the question. Critics of employer return to work decision making and CBA assert the primary focus is too limited as it is primarily cost driven.  What is missing is consideration of legal and human factors, the ability of a returning worker to be productive and the impact of absence from work/return to work on labour relations and employee morale. CBA is a useful starting point but any objective and effective return to work planning process must simultaneously address a number of issues.

The RTW Quotient: A tool in evaluating workplace options

Our suggested hybrid approach which is based on CBA but adds non-cost factors is a CBA formula or “RTW Quotient”.

RTW Quotient = Direct Costs + Indirect Costs X (Labour Relations Impact + Productivity)

Direct costs

Direct costs relate to actual payments/expenses flowing from the worker’s absence from work due to an occupational or non-occupational injury/illness.

Direct costs include:

  • Benefit entitlements to the worker paid in lieu of normal earnings charged to the employer.
  • Worker benefit top-ups exceeding legislative/insurance loss of earnings as per workplace arrangements/collective agreement.
  • Employer continuation of worker employee benefits.
  • Employer incurred third party administrator disability or claims management costs.
  • Employer incurred health care/disability management costs (medical, treatment, and rehabilitation not covered by a government/insurance program).
  • Employer incurred appeal/litigation costs.

Indirect Costs

Indirect costs relate to expenses which are related to a workplace injury/illness which add to the overhead of conducting business.  Occupational health and safety studies have estimated that the ratio of indirect to direct costs is in the order of 4:1 to 10:1.

Indirect costs include:

  • Replacement worker direct earnings.
  • Replacement worker training and other employment/orientation related costs.
  • Overtime paid to existing workers to replace the absent employee.
  • Repair, replacement, or rental of equipment, vehicles, etc. if damaged in the course of the worker’s injury/illness.
  • Government charges and penalties.

Labour relations

Labour relations impact relates to the impact a worker’s absence has on employee morale.  The inclusion of employee morale recognizes that participation in work is a form of “social capital” which may contribute to a positive workplace culture. This is expressed as an estimate of the increase or decrease in percentage terms.  If employee morale is negatively impacted by, for example 10%, the entry into the RTW Quotient would be the difference between 100% and 90% = 10% or 0.1.

Productivity

Productivity relates to the impact on the level of performance/productivity for the worker.  This reflects an estimate of what percentage of the worker’s pre-injury/illness work (essential and non-essential duties) he/she is fit to undertake at the time of return to work. This is expressed as an estimate of the decrease in productivity in percentage terms. If the worker can return to work but only do 50% of a job the entry into the RTW Quotient would be the difference between 100% and 50% = 50% or 0.5.

Examples

In these examples, the injured/ill worker normally earns $250.00 per day and is covered by the organization’s benefit plan which adds 20%-30% to the worker’s remuneration.  In all cases, return to work decision making has taken into consideration compliance with applicable workers’ compensation, occupational health and safety, labour relations, employment standards, and human rights requirements.

Example 1:         

Worker is absent from work for 2 days with a minor injury/illness.
Direct cost lost earnings = $500,
Indirect costs (4:1) = $2,000,
No impact on morale or productivity.

RTW Quotient = 500 + 2000 X (0) = 2,500

Example 2:         

Worker is absent from work for 5 days, with a slightly more significant injury/illness.
Direct cost lost earnings = $1,250,
Indirect costs (5:1) = $5,000,
Employee morale loss = 10%,
Productivity level is 50% of pre-injury work.

RTW Quotient = 1,250 + 5,000 X (.1 + .5) = 10,000

While the worker in example 2 was off work 250% more than in example 1, the RTW quotient has increased by four fold.

Example 3:          

Worker is absent from work for 10 days.
Direct cost lost earnings = $2,500,
Indirect costs (5:1) = $12,500,
Employee morale loss = 10%
Productivity level is 60% of pre-injury work as worker has had more time for recovery and to regain an enhanced fitness level.

RTW Quotient = 2,500 + 12,500 X (.1 + .4) = 22,500

While the worker in example 3 was off work more than double than example 2, the RTW
Quotient increased by an amount slightly greater than double. 

Example 4:          

Worker is absent from work for 10 days.
Direct cost lost earnings = $2,500,
Indirect costs were limited to 4:1 = $10,000,
Employee morale loss = 30% as co-workers grew increasing concerned the worker would suffer an extended absence and would be missed in the workplace,
Productivity level continues = 60%

RTW Quotient = 2,500 + 10,000 X (.3 + .4) = 21,250

In this example, a small decrease occurs compared to Example 3 due to better management of indirect costs.  However, this was offset by an increased concern in employee morale.

Example 5:          

Worker is absent from work for 10 days.
Direct cost lost earnings = $2,500
Indirect costs were limited to 4:1 = $10,000
Employee morale continues at 30%.
Productivity level = 80% as the worker’s condition continues to improve withadditional time for rehabilitation.

RTW Quotient = 2,500 + 10,000 (.3 = .2) = 18,750

In Example 5, the RTW Quotient is lower than for Examples 3 and 4 due to the positive impact anticipated with providing the worker with sufficient time to and the necessary accommodation to
be more productive.

Conclusion

The RTW Quotient, therefore, can be impacted by various decisions which juxtapose costs, human resource considerations and productivity.  A workplace RTW Quotient can be adjusted to consider additional factors.

It was assumed that in any example the employer is not legally permitted to continue the worker`s direct earnings during short term absence from work.  Employee use of sick leave, vacation or public policy options would substitute and are not included in the methodology.

The benefit of this hybrid approach is that it provides the workplace parties with a more complete tool for addressing the question: what is the most effective mix of factors which may lead to a timely and successful return to work. 

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