Taken from the book: Human Resource Case Studies, By Martin Gabriel, © HRmatters21
Once again, I received the usual call for help. I asked the HR Manager of the company, “What seems to be the problem?” The HR Manager replied, “Too many MC (Medical Certificate) Kings and Queens.” He was referring to employees who were frequently on medical leave but who may not be genuinely sick. The employees’ medical leave seemed to follow a certain pattern. They were usually on Mondays and taken by employees who had exhausted all of their annual leave entitlement. Of particular note was that the annual leave entitlement of new employees was just seven days—the bare minimum enforced by the Employment Act. I told the HR Manager that one of the possible reasons contributing to the high incidence of MCs could be that the annual leave entitlement was insufficient and uncompetitive compared to what other companies were offering. Most companies gave between 10 days for the first year of service and up to 18 days maximum per annum. My client was in the food and beverage (F&B) industry, which is a labour intensive industry. The job was also physically demanding. When employees are given insufficient leave, they tend to look for alternatives to get away from work and a popular option is to doctor-shop to obtain an MC even though they may not be genuinely ill. Another possible reason contributing to the high incidence of MCs could also be the liberal policy of allowing employees to visit their family doctors. While I am not against the idea of allowing employees the convenience of seeing their own family doctors, as it is rather unreasonable to ask an employee to travel somewhere further if he is sick (we usually have to give the benefit of the doubt), I believe this should be done with some form of control. The Employment Act allows employers to appoint their own doctors, albeit MCs from all government affiliated hospitals and clinics (including polyclinics) must be recognised. Initially, I suggested two recommendations that could mitigate the company’s high incidence of MCs.
- Increase annual leave entitlement from 7 days to 10 days (from the first year)
- Recognise MCs issued by employees’ family/personal doctors only 4 times a year.
After the fourth time, employees have to visit the company-appointed doctor or government affiliated hospitals or polyclinics for their MCs to be recognised by the company. I believed the above could mitigate the high incidence of medical leave. However, not long after making those recommendations, I had a nagging feeling that their effects would not be as impactful as I had hoped for. I had trouble sleeping that night and was thinking about how many companies had implemented similar policies but had experienced only lukewarm results. It was then that I was struck by a brilliant idea! I texted my client immediately and arranged a meeting the next morning. At the meeting, I drew a chart and advised him that we should incentivise the sort of behaviour that we desired.
Many companies have a ‘No-MC Award’ that was given to employees who did not consume their medical leave. However, calling it a ‘No-MC Award’ was wrong, as consuming medical leave was not a benefit—it was one’s right. We must never deny an employee’s right to go on medical leave, especially when a qualified doctor recognised by the company had granted it. Most companies also had a policy to reward an employee if he or she did not consume any medical leave in a year. Usually, the reward would be about $100. I advised the HR manager that this was not a good approach as the stakes were high. Imagine if one employee contracted SARS on the 31st of December. If he were to take medical leave, he would lose the $100 incentive that would certainly be his if he maintained his MC-free record for just one more day; there was a high chance that this employee would turn up for work despite being down with a contagious disease. In this scenario, the health of all the employees would be put at risk and that would ultimately affect productivity as well. Therefore, while we wanted to encourage 100% work attendance, we also wanted to ensure that those who are genuinely sick stay home to rest. The question was: how do you formulate a policy that does just that? The answer, in my opinion, was a tiered model reward system. In addition to the earlier two recommendations, I also recommended to the company the following:
- Employees who do not consume any medical leave or up to one day’s medical leave will receive a S$500 cash award.
- Employees who consume between two to three days of medical leave will receive a S$300 cash award.
- Employees who consume between four to five days of medical leave will receive a S$100 cash award.
There will be no award for employees who consume six days or more of medical leave.
We also decided to call this policy ‘The Healthy Award Scheme’ because as I had said earlier, it was wrong to call it a ‘No-MC Award’ as consuming medical leave was an employee’s right. The following table is a summary of our award scheme.
|No:||Number of Medical Leave days consumed||Reward entitled to|
|1||Zero – One||S$500|
|2||Two – Three||S$300|
|3||Four – Five||S$100|
|4||Six or more days||No cash award|
When I submitted the proposal, the CEO asked me, “Where is all this money coming from?” It was a question that I had anticipated. The bottom-line is always the most important thing to a CEO. I went through the math with him, which went along something like this:
Let us take for example, an employee who earns about S$1,800 per month, which was the median salary of their waiters. Since most of the company’s staff took all 14 days of the medical leave to which they were entitled, the cost to the company would be as follows:
S$1,800 (Gross Salary) x 12 x 14 / 312 (6 days’ workweek) = S$969.23
Note that when an employee is on medical leave, he is still paid his salary. Based on a median monthly salary of S$1,800, an employee on medical leave for a day would cost the company S$69.23. An employee on medical leave for 14 days a year would cost the company about S$969.23. Mind you, there is also a loss of output in terms of man-hours, so it’s a double whammy of cost and productivity loss. Now, please don’t get me wrong, I have nothing against employees who are sick and need rest. I’m merely quantifying the financial ramifications to the company. So how can we truly calculate the loss? Since the company is paying the employee $69.23 for a day’s work, that amount would also be the opportunity cost; when an employee goes on medical leave, the company does not lose just one day’s pay, it also loses one day of output.
Therefore, total loss should be calculated as S$69.23 x 2 = S$138.46. Some companies may even calculate the cost of having another staff to cover the duties of the employee who is on sick leave. I shall not do this, as I prefer to keep the calculation direct and simple. However, what about medical-fee reimbursement? The average reimbursement was about S$40. Now if we add everything up, what would the total cost be? Let me demonstrate by using a table to tabulate the total cost.
Number of Medical Leave days
|Cost of Medical Leave||Total Cost|
|1 day of medical leave consumed.||S$69.23|
|Loss of man hours per day / opportunity cost is equivalent to a day’s pay.||S$69.23|
|Average cost in medical reimbursement||S$40|
|Total cost of medical leave (consumed per day) would be S$69.23 x 2 + S$40||S$178.46 (medical leave per day)|
|Total cost per year would be: S$178.46 x 14||S$2,498.44|
If an employee consumed all 14 days of his medical leave, it would cost the organisation a whopping S$2,498.44 per year. Now, imagine if all their employees did the same. What would the cost be? The amount would indeed be frightening. I explained the above to the CEO and advised him that the cost of the incentive scheme that I had suggested was paltry compared to the cost his company had to bear if his employees consumed 14 days of medical leave a year. When he had digested all the information, he was convinced to try the incentive scheme. We implemented the scheme the following year and by the end of that year, we saw positive results. Employee attendance had improved significantly and the total cost of medical leave was reduced. The scheme was a win-win for both the company and the employees. In conclusion, let me explain why the scheme was particularly effective in the case discussed. Firstly, the financial incentives had a greater impact on employees who earned no more than S$2,500, as the amount formed a significant percentage of their pay. There might be very little impact on high-earners as the amount might not be significant enough to drive and motivate them to change their behaviours. Secondly, the scheme also had a greater impact because the company was in the service industry, which relied significantly on labour output. Man-hours are critical to restaurants and hotels, yet they are the ones who seem to be grappling with high incidences of medical leave. I believe it is due to the work of a service-industry worker being more physically demanding compared to the work a white-collar employee performs. I am sure white-collar work can be stressful as well but I do believe that labour-intensive work often leads to fatigue and as a result, employees who have insufficient annual leave may tend to explore other options of getting their much needed rest-days, one of them being the full utilisation of their medical leave entitlement. Therefore, it makes sense for companies in the labour intensive industry to use incentives to shape the behaviours of their employees in such a way that would enhance productivity and reduce cost. For my client, the suggestions I made above, when implemented, did show positive results. However you would need more than a year to notice the savings and gains in productivity. It took more than a year for my clients to see the positive results from the implementation of my recommendations, but the savings in cost and the gains in productivity were worth the wait.
By Martin Gabriel, Senior HR Consultant, HRmatters21
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