Study: Shiftwork Operations Losing Major Profit Gains

The unintended and largely unrecognized costs associated with shiftwork, such as irregular schedules, night shifts and extended hours, are eroding the profits of American businesses by $206 billion annually, or approximately $8,600 per extended hours employee, according to a new study by Circadian Technologies Inc.

While extended hours (shiftwork) operations offer major advantages to retail, health care, manufacturing and service businesses and their customers, the study predicts that the financial and social costs of such work are likely to escalate as extended hours operations become even more prevalent.

Today, nearly one in five employees, or approximately 24 million Americans, half of whom are in professional or white-collar occupations, regularly work irregular schedules, night shifts or extended hours positions. Often stereotyped as blue-collar manufacturing or transportation workers, 21st century extended hours employees staff around-the-clock customer service call centers, retail establishments, information technology monitoring and support centers, hospitals, emergency response services and 24-hour news operations.

Extended hours operations enable companies to attain lower unit costs, shorter supply chains, and better asset utilization and customer service. But extended hours operations also incur higher costs than traditional daytime operations. Primary factors eroding potential profits for businesses with extended hours operations include lower productivity ($79.4 billion), higher absenteeism ($50.4 billion), greater employee turnover ($39.1 billion), increased health care costs ($28.2 billion) and more job-related accidents ($8.5 billion), the study reports.

"Difficult economic times have resulted in understaffed and inefficiently staffed conditions in many extended hours facilities. This, in turn, leads to excess and imbalanced overtime, high absenteeism and turnover rates, increased costs of recruitment, and excessive employee health and accident costs," said Alex Kerin, Ph.D., a report co-author. "Workplace productivity and employee morale also suffer as a result of unmanaged challenges confronting extended hours operations."

The Circadian report prescribes how senior management can manage the costs and risks of extended hours operations, leading to substantial opportunities to increase company profits while also helping employees. Proven measures that mitigate problems and reduce costs associated with an extended hours work force include:

  • Analyze rates for overtime, absenteeism, turnover/recruiting, accidents, health problems, and property/casualty insurance costs in total and by facility; benchmark against internal and external measures and identify high-risk extended hours facilities.
  • Reallocate human resources, training, health and safety budgets to provide additional resources for extended hours operations.
  • Adjust employee work schedules and staffing distribution to minimize excess overtime, absenteeism, turnover and replacement costs.
  • Legal counsel and risk managers should identify specific areas of legal risk within extended hours operations.
  • In conjunction with health and property/casualty insurance providers, or in-house risk managers, design interventions that reduce the excess health care costs and accident rates inherent in many extended hours operations.

"The recommendations in our report should be considered low-hanging fruit for improving financial performance," said John Carbone, the other co-author. "Addressing these issues on a corporate-wide basis could have dramatically alleviated or eliminated the need for many of the deep cost reductions that companies have instituted over the last several years. Given the continued need to streamline operations, addressing the excess costs of extended hours operations must be the next top priority."

The costs and risks of extended hours operations generally are unrecognized, the report states, because most employee data is not segmented by shift, and because senior executives are generally not present when the majority of problems related to extended hours operations occur.

Some of the key costs and risks preventing U.S. companies from achieving the full potential benefits of extended hours operations, according to the Circadian study, are:

Lost productivity - Measured as output per employee hour, productivity is 5 percent lower between the hours of midnight and 7:00 a.m. than during the day. By using a model that estimates the value of goods or services that an extended hours employee must add to an operation (based on salary, benefits and overhead), the annual cost of lost night time productivity is $79.4 billion, or $3,309 per extended hours employee.

Absenteeism - Average absenteeism among companies with extended hours operations is more than twice the national average, at 4.9 percent versus 2.1 percent. The average incremental cost of overtime and temporary workers to cover for absenteeism is $2,102 per extended hours employee, or $50.4 billion annually, versus an average of $970 per non-extended hours employee.

Turnover - Average turnover is nearly three times higher among extended hours workers, with a turnover rate of 9 percent in 2002 compared with a national average of 3.4 percent. The average cost of recruiting and training extended hours employees is $25,000, including overtime, lost productivity, administration, training, recruiting and separation costs, bringing the incremental cost to $39.1 billion, or $1,631 per extended hours employee.

Health care costs - Employees staffing extended hours operations suffer from significantly higher rates of obesity, gastrointestinal disorders, cancer, sleep disorders and fatigue-related car accidents. The study estimates that health problems exacerbated by continuous operations cost U.S. employers an additional $28.1 billion annually, or $1,181 per extended hours employee, in higher health insurance costs.

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