Unjustified sick leaves cost the Croatian economy more than one billion kuna annually

The extent of employee sick leaves in Croatia and the associated costs for employers and the Croatian Health Insurance Fund (HZZO) was the subject of the study 'Sick Leaves in Croatia – State Analysis' by authors Dr. Iva Tomić and Dario Ćorić, published by the Croatian Employers' Association. The study particularly addresses unjustified sick leaves, as well as the authors' proposals for improving this part of the health insurance system. We present excerpts from the analysis provided to us by Dr. Iva Tomić, chief economist of HUP, with minimal corrections.

The authors emphasize that despite a significant increase in revenues, especially from contributions, expenditures in the Croatian health system continue to rise relentlessly. With the COVID crisis, this will escalate further. For employers, in addition to the significant labor costs in the form of high health insurance contribution rates (16.5 percent), sick leaves also represent enormous (direct and indirect) costs.

From 2013 to 2019, there was a visible increase in the total number of days of temporary incapacity for work (the authors note that PNR is a broader term than sick leave as it includes, for example, absence from work due to caring for a family member). Also, during the same period, there was an increase in the number of PNR cases, with this growth being more pronounced in the case of sick leaves at the employer's expense. Although the average duration of PNR is slightly decreasing, on the other hand, the average number of people absent from work is increasing. Namely, from 2013 to 2019 (i.e., in the period before the pandemic), the number of sick leave days at the employer's expense increased from six to nearly nine million, and the number of sick leave cases rose from 600,000 to nearly one million. At the same time, in 2019, the number of sick leave cases at the employer's expense compared to those at the expense of HZZO was 4 to 1. The study states that the total cost of sick leaves for employers in 2019 amounted to more than three billion kuna, not counting the costs for paying replacement work or losses due to unperformed work. On the other hand, almost all EU member states had a lower number of sick leave days at the employer's expense compared to Croatia, with the Croatian system being most similar to the German one, which allows for 42 sick leave days at the employer's expense. Furthermore, compared to other EU member states, Croatia is in the upper half of countries in terms of the share of absentees from work due to illness or incapacity for work. Moreover, there is also an increase in the number of so-called unjustified sick leaves, indicating the justification for seeking a change in the entire sick leave system in Croatia.

Unjustified sick leaves

The HZZO's report for the first half of 2020 states that due to the continuous unfavorable trend in sick leave rates, as early as the beginning of 2017, HZZO intensified regular sick leave controls, and special committees for extraordinary sick leave control were organized, as well as committees for sick leave control by F-diagnoses (the letter F in medical diagnosis denotes a group of diagnoses describing deviations of spirit and consciousness). Namely, HZZO conducts regular controls of temporary incapacity for work (sick leaves), as well as sick leave controls at the request of employers, which are processed in special reports by the Control Service.

In the annual HZZO business report for 2018, it states that a total of 4,588 controls of contractual entities (legal persons) of HZZO were conducted that year, and 7,620 insured persons were reviewed. At the request of the employer, 2,282 insured persons were reviewed, in regular HZZO controls another 5,230, and in extraordinary controls 108. After the controls, 2,270 sick leaves were closed, which were found to be false (30 percent of the total controlled), and 142 warnings were issued to contractual entities, 12 warnings with damage payment, 18 warnings with monetary fines, five warnings with damage payment and monetary fines, and one warning before contract termination with a monetary fine.

The most common reasons for issuing contractual measures were scant or insufficient medical documentation and the absence of medical indications for further use of sick leave. It should be particularly noted that HZZO, in order to further reduce unjustified use of sick leave, established special committees for extraordinary sick leave control that called insured persons for clinical examinations and made expert-medical assessments of the justification for further use of sick leave. In these extraordinary controls, 5,860 insured persons were reviewed, after which as many as 2,318 false sick leaves were established, or 40 percent.

From the above, it follows that in 2018, a total of 13,480 insured persons were reviewed, and 4,588 false sick leaves were established or 34 percent of those controlled. Compared to 2017, 2,832 more insured persons were reviewed and 1,478 more false sick leaves were established (in 2017, a total of 10,648 insured persons were controlled, of which 3,110 sick leaves or 29 percent were canceled).

After the study was completed, HZZO published data on controlled sick leaves for 2019 and 2020. Thus, in 2019, a total of 15,968 insured persons were reviewed in conducted PNR controls, and 6,230 PNRs were closed or 39 percent of those controlled, which compared to 2018 means that in 2019, 2,488 or 18.5 percent more insured persons were reviewed and 1,642 sick leaves were closed as false or 36 percent more PNRs. In 2020, due to the pandemic, the situation regarding sick leaves and their controls was somewhat different, so in conducted PNR controls, a total of 22,982 insured persons were reviewed. 5,869 false sick leaves were closed or 26 percent of controlled PNRs, which compared to the same period in 2019 means that in 2020, 7,014 more insured persons were reviewed (44 percent) and fewer sick leaves were closed – 361 or six percent of PNRs.

Eight thousand unjustified absences from work daily

The authors further emphasize that the previously mentioned data suggest that the share of unjustified sick leaves hovers around 30 percent. However, they caution that one should be very careful in concluding; namely, the share of 34 percent of concluded sick leaves in 2018 or 29 percent in 2017 refers only to sick leaves that were controlled, not to all sick leaves. Given that the sick leaves that were controlled were considered suspect for some reason, the share of unjustified sick leaves in the total number of sick leaves is likely somewhat lower. On the other hand, there is a significant chance that the number of unjustified sick leaves is actually much higher because those that are not marked as suspicious escape control. For the purposes of this analysis, the authors took into account the assumption of a share of unjustified sick leaves of 30 percent.

The HZZO's report for 2019 states that for illness alone, the amount of compensation at the expense of HZZO was 826,804,236 kuna (if we include accompaniment and care for a family member, this amount rises to 925,755,783 kuna). At the expense of the employer, 27,440 people are absent from work daily due to illness, while at the expense of HZZO, 21,806 people are absent daily due to illness and care for a family member, excluding complications in pregnancy. If we apply the aforementioned percentage of unjustified sick leaves of 30 percent to this data, we could conclude the following:

– at the expense of the employer, 8,232 people are unjustifiably absent from work daily;

– at the expense of HZZO, 6,542 people are unjustifiably absent daily;

– at the expense of HZZO, approximately 248,041,271 kuna is spent annually on unjustified sick leaves.

It should be noted that controls are mainly focused on sick leaves over 42 days, i.e., on sick leaves at the expense of HZZO. This is certainly not the final cost for HZZO as there are also indirect costs for the health system in the form of increased engagement of health workers, increased administration, sick leave controls, etc.

Looking at the total number of employee absences from work, it can be concluded that the Croatian economy spends 1,867,218,238 kuna annually just for sick leaves of workers due to illness. Considering that 30 percent of sick leaves are unjustified, the Croatian economy directly loses at least 560,165,472 kuna annually.

This is indeed a conservative calculation with an estimate of the minimum cost for the Croatian economy, for the following reasons:

1. There are limitations present in the compensation at the expense of HZZO that do not apply to compensation for sick leave at the expense of the employer:

– compensation at the expense of HZZO is paid only after the 42nd day of sick leave, while the average duration of temporary incapacity for work in 2019 was 15.4 days (at the expense of the employer 8.9 days),

– compensation at the expense of HZZO is limited in its amount, i.e., it amounts to the budgetary base increased by 28 percent (4,257.28 kuna);

– contributions for the first pension pillar and income tax are not calculated on the compensation at the expense of HZZO.

As a result, it is certain that employers more frequently provide compensation and in larger amounts (at least 70 percent of salary, often more) than when the compensation is provided at the expense of HZZO. Therefore, the amounts used for the calculation of 560,165,472 kuna are lower than the actual amount.

2. The established (minimum) amount needs to account for direct and indirect costs due to unjustified sick leave:

– contributions for pension insurance (15 percent for the first pillar and five percent for the second pillar) and income tax (24 percent or 36 percent, or 20 percent or 30 percent) on salary compensation during sick leave,

– the cost of lost work of such a worker,

– the cost of overtime work of other workers who have to take over the work of the absent worker (here it is necessary to consider the time cost and salary cost for overtime work),

– reduced productivity of the company and other workers,

– increased administration (due to changes in worker schedules, different payroll calculations),

– reduced quality of service (because the worker who substitutes is not specialized like the absent worker),

– uncertainty about the duration of the worker's absence,

– hiring replacement workers and their training, etc.

Taking the above into account, it is clear that there is a justified basis for the claim that unjustified sick leaves cost the Croatian economy more than one billion kuna annually, if not more billions of kuna. Especially when we consider the present anecdotal evidence that sick leaves are often abused for the purpose of performing unreported work, i.e., the gray economy.

Possible direction of reform

The authors in the analysis also mention possible directions for reforming the sick leave system, which includes the following:

1) Reducing the burden on employers, especially in the part up to the first 10 days of sick leave:

– Equal tax treatment of employers and the state when paying compensation (HZZO pays compensation in net amounts, the employer in gross II amounts).

2) Greater powers for controllers in cases of unjustified sick leaves:

– Closing sick leaves by the controller themselves, as well as expanding the area of control.

3) Shortening the total duration of sick leave at the employer's expense from 42 days in uninterrupted duration to a maximum of 30 days annually:

– In accordance with the practice of other EU countries.

4) Allowing employers greater management of sick leaves:

– Allowing so-called sick days. For example, five or seven days of so-called sick days annually that can be used without justification, for minor illnesses/discomforts, while everything officially prescribed by a doctor would be at the expense of the state, i.e., HZZO. This would reduce pressure on the health system, and the worker would not be motivated to take, nor would the doctor approve, unjustified sick leave. For example, Slovenia introduced the possibility of short sick leave of up to three consecutive days without a confirmation from a general practitioner in February this year (although this is a temporary measure lasting until December 31, 2021). HUP has already received inquiries from its members about such a possibility in Croatia, indicating that there is interest among Croatian employers in this option.

– The possibility of simple termination of employment contracts in clearly defined cases.

– On the other hand, tax-exempt supplementary/additional health insurance (along with occupational safety, but also regular health check-ups and vaccinations at the employer's expense) could further contribute to prevention, better health of workers, quicker return to work, and relieving the health system.

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