In 1997, at the request of Health Canada, The. Smoking and the Bottom Line: Updating the Costs of Smoking in the Workplace. Briefing August 2006

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1 Briefing August 2006 Smoking and the Bottom Line: Updating the Costs of Smoking in the Workplace At a Glance The Conference Board updated its 1997 study on the costs to employers who employ smokers, and it found that the total costs have increased from $2,565 per smoking employee in 1997 to $3,396 in The cost of smoker absenteeism has increased from $230 to $323, and the cost of decreased productivity due to smoke breaks has gone from $2,175 to $3,053. These changes are partly attributable to wage increases (more than 70 per cent of the cost for absenteeism, and more than 30 per cent for productivity). Smoking facilities costs have decreased, from $85 in 1997 to $20 in 2006, as a result of increased bans on smoking within workplaces. Smoking clearly impacts an organization s bottom line, but it is only one of several employee health issues that does. INTRODUCTION In 1997, at the request of Health Canada, The Conference Board of Canada prepared a report detailing the costs to employers of workers who smoke. The key feature of the report was a four-part model identifying and estimating the annual costs of employing smokers, on a per-employee basis. The model s components take into account four areas where smoking was determined to have a cost impact for an employer: employee absenteeism, employee productivity, insurance costs and smoking facilities costs. A cost to employers was determined for each area on a per-employee basis; the costs, as calculated in 1997, are set out in Table 1. In the fall of 2005, Health Canada asked the Conference Board to update the model to take into account the new realities of restrictions on smoking HEALTH, HEALTH CARE AND WELLNESS

2 Table 1 The Annual Costs of Employing Smokers, as Calculated in 1997 (1995 $ per smoking employee) Cost Factor Cost Increased absenteeism 230 Decreased productivity 2,175 Increased life insurance costs 75 Smoking facilities costs 85 Source: The Conference Board of Canada. in Canadian workplaces and to provide guidance on applying the model to specific industries, regions and employee groups. This report provides an overview of smoking in Canada, with a focus on how smoking in the workplace has changed since It then takes each of the model s components, reviews its applicability and calculates costs in light of more recent data on salaries and smoking restrictions. In the United States, the focus on the costs of employing smokers is considerably more pronounced. Recent articles in the mainstream media and reports by benefit consulting firms show that U.S. employers are taking the next step in reducing the number of employees who smoke in the workplace. Whereas wellness programs can be considered a soft encouragement to quit smoking, U.S. employers are now charging additional premiums for smokers health insurance coverage and, in some cases, refusing to employ smokers at all. 2 In the latter case, there is some indication in the literature that a handful of employers have gone so far as to make all employees commit to being non-smokers by a certain date, and to fire those who are unsuccessful in breaking the smoking habit. (See box U.S. Efforts to Reduce Smoking Among Employees: Just What the Doctor Ordered, or One Step Beyond the Law? ) As of May 31, 2006, seven Canadian provinces and all three territories have full or partial bans on smoking in public places. SMOKING IN CANADA: A CHANGING WORLD Since 1989, when the federal government banned smoking in its workplaces, employers have arguably come a long way in understanding the impact of smoking on their costs, the health of their employees and customers health. The best indicator of this is the rapidly increasing number of employee assistance program (EAP) providers that are now focusing on workplace wellness, as well as the number of organizations implementing wellness programs in their workplaces. 1 Wellness programs typically comprise a number of initiatives focused on improving employee health, including smoking cessation programs. The reason that EAP providers and their clients often cite for implementing these programs is the return on investment: poor employee health results in increased absenteeism, higher health insurance claims (and therefore costs) and a higher number of workplace accidents. Wellness programs attempt to reduce these incidences and the employer costs associated with them; smoking cessation forms a key component of these programs. If nothing else, these examples demonstrate that the effect of smoking on an employer s bottom line is now on organizations radar screens a much different picture from that of nine years ago, when the Conference Board s report on the subject was first published. However, awareness of the costs is not the only thing that has changed. CANADIAN LEGISLATIVE ENVIRONMENT INCREASINGLY SMOKER-UNFRIENDLY Until three years ago, most smoking restrictions were enacted by municipal and local governments, resulting in a patchwork of standards that differed from city to city. However, provincial governments have now imposed province-wide smoking restrictions or bans in public places. On May 31, 2006, smoking was effectively banned in all public places in seven provinces and territories, with an additional province (Quebec) joining the list in (See box Overview of Smoking Bans. ) In other provinces and municipalities, bans on smoking exist in most workplaces, whether they are offices, manufacturing plants or public facilities. Restrictions may 2 The Conference Board of Canada

3 U.S. Efforts to Reduce Smoking Among Employees: Just What the Doctor Ordered, or One Step Beyond the Law? The rising cost of health benefits has been a key concern for employers in North America. As aging workers grow in numbers, so does their need for more health services. More visits to the doctor and to specialists, an increased need for diagnostic imaging and more prescriptions have pushed up health care costs. In the United States, where no universal medical care exists, employer-sponsored health insurance has been bearing the brunt of this increase. Organizations are now taking steps to reduce these costs. While wellness programs work to improve the overall health of employees through encouragement and positive reinforcement, U.S. employers are taking a hard-nosed approach to employees with habits known to be bad for their health. And smoking is number one on their list. In a survey of 950 employers in 2005, 41 per cent said that they use some form of financial incentive or penalty in their health care plan. For smoking employees, this means higher premiums for health insurance. In fact, the practice of applying a smoker surcharge for insurance has become so prevalent that the consulting firm Hewitt Associates is adding this surcharge to their annual survey of employer benefit practices. These surcharges appear to be assessed on an employer-by-employer basis. There is no indication that an actuarial process is being applied to determining the cost that a smoker will bear. As a result, these additional charges range from a few extra dollars per month to several hundred dollars per year. The focus of these charges is a negative incentive; some organizations will waive the fee, once a smoker has completed (or even tried to complete), a smoking cessation program. It is important to note that it is employers who are applying the surcharge, not insurance providers. Insurance companies cannot reasonably assess what a smoking surcharge should be, given the lack of knowledge of employees who actually smoke. The companies who do engage in this activity apply the surcharge based on an employee s willingness to self-report the habit. While some have developed ways to deal with employees who hide their smoking status, it is ultimately the employers who bear the cost and time of identifying fraudulent non-smoking claims. It is not clear whether this kind of an approach would work in Canada. American employment laws are generally more favourable towards employers, whereas Canadian jurisprudence is more in favour of protecting an employee s right to privacy in the workplace. This would be particularly true of the controversial decision by some American employers to not hire smokers or to remove smokers who do not quit within a set period of time from their organizations. Even in the United States, this practice is on precarious legal footing, although only a court challenge will ascertain whether or not these employers have encroached too far on the privacy of employees. Source: Associated Press, Some Smokers Pay More for Health Benefits (February 17, 2006). vary in other venues such as restaurants, bars, bingo halls, billiard halls and bowling alleys. Depending on the province, smoking in these establishments may be permitted, or be subject to fewer restrictions than in other public places. The proportion of Canadian workers who are employed in the accommodation and food industry is 6.3 per cent, while employment in information, culture and recreation accounts for 4.9 per cent. 3 Although specific workplaces are still not covered by smoking bans, the proportion of Canadian workers who are not covered by a smoking ban in the workplace can be assumed to be very low. What this means for the large majority of Canadian employers is that, while smoking within the workplace is now effectively a non-issue, most smokers who do take a break to consume a cigarette are required to leave the premises. The implications of this change are discussed in more detail below, as we review the portions of the model dealing with productivity and facilities. Overview of Smoking Bans Complete Ban in All Public Places Manitoba Saskatchewan New Brunswick Newfoundland and Labrador Nunavut Northwest Territories Ontario (May 31, 2006) Quebec (May 31, 2008) Partial Bans Alberta: smoking ban in public spaces, where minors are allowed. Eleven municipalities, covering 60 per cent of the province s population, have a complete ban. British Columbia: smoking prohibited in most public places, including restaurants. Exceptions include bars, billiard halls, bingo halls, bowling alleys and casinos. Five municipalities, covering 15 per cent of the population, have a complete ban in public places. Prince Edward Island: smoking prohibited in most public places, including restaurants. Exceptions include bars, billiard halls, bingo halls, bowling alleys and casinos. Yukon: no smoking ban exists, but this is currently under review. One municipality, covering 67 per cent of the territory s population, has a complete ban. Source: Non-Smokers Rights Association. 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4 SMOKING PREVALENCE AND OCCURRENCE FALLS In 2001, Health Canada reported that 22 per cent of Canadians in all age groups were smokers. Men had a higher prevalence of smoking (24 per cent) compared with women (20 per cent). 4 In 2004, the proportion of Canadians who smoke had fallen to 20 per cent. The gender difference in smoking occurrence remained: 22 per cent of men and 17 per cent of women smoke. 5 Both the number of smokers and the number of cigarettes consumed have decreased in recent years. Likewise, the number of cigarettes consumed in a day had fallen. The 1997 Conference Board study cited the Canadian Tobacco Use Monitoring Survey, which reported that the average smoker consumed 19 cigarettes a day. In 2004, this number had fallen to 15.2 cigarettes daily, with men consuming 16.4 and women consuming The observation that smokers take more sick leave than non-smokers is not new, and more evidence gathers every year to reinforce it. In the Surgeon General s Report on Tobacco 2004, the Centers for Disease Control and Prevention in the United States reviewed 30 studies of employee absenteeism conducted between 1960 and All but one of the studies found higher rates of absenteeism among smokers, and 17 of the studies reported absenteeism to be at least 20 per cent higher than among non-smokers. 9 More recently, a 2005 study of the impact of smoking on absenteeism and productivity costs in Taiwan showed that male smokers were absent an additional 1.06 days per year and female smokers were absent an additional 1.21 days. 10 In Canada, preliminary data from the Canadian Community Health Survey, conducted in 2004 by Statistics Canada, showed that smokers were absent from work for two additional days, compared with their non-smoking colleagues. 11 The most recent Canadian research data indicate that smokers take two more sick leave days per year than their non-smoking counterparts. Whether it is due to more restrictive legislation about where and when smoking is permitted, heightened awareness of health risks or shifting public attitude, it is clear that smoking is happening less often and among fewer Canadians. What does this context mean for employer costs? We will explore this by examining each aspect of the model used in 1997 to determine the costs of smoking: absenteeism, productivity, insurance costs and smoking facilities costs. EMPLOYEE ABSENTEEISM The 1997 Conference Board report cited the 1994 General Social Survey conducted by Statistics Canada, which found that smokers were absent from work 1.8 more days per year than non-smoking employees. 7 Given that most employees in Canada are paid for their sick leave, the costs associated with these extra absences are generally borne by employers. 8 Calculating the cost of additional absenteeism is a matter of multiplying the difference between the annual number of sick days taken by smokers and non-smokers by the average daily per-employee payroll cost. Most recent Canadian data suggest that smokers take two more days per year compared with their non-smoking counterparts. While these data are preliminary, the component nature of this model will allow employers to take the finalized statistics and plug them into the appropriate calculation. The average daily per-employee payroll cost is made up of two components: average daily wages for Canadian workers, and taxes and benefits paid by the employer. The average daily wage is calculated by taking the average weekly wage and dividing by five (the number of workdays in a standard workweek). In 2005, the average daily wage is calculated by the Conference Board to be $ The taxes and benefits paid by the employer are the additional costs that employers pay on top of wages. This includes legislated payroll taxes (i.e., Canada Pension 4 The Conference Board of Canada

5 Table 2 Calculating Additional Absenteeism Cost of Smoking Employees to Employers COST Absent = DAYS LOST Smoker x DAILY WAGE x (1 + BENEFITS and TAXES) = $323 COST Absent DAYS LOST Smoker DAILY WAGE BENEFITS and TAXES Annual per-employee cost due to increased absenteeism (in dollars per employee) Number of additional days in absenteeism taken by a smoking employee compared with a non-smoker Average daily wage (weekly wage of $717.50, divided by five working days) Payroll taxes and benefits paid by employer (supplementary labour income) expressed as a percentage of payroll Source: The Conference Board of Canada. Plan/Quebec Pension Plan and Employment Insurance premiums), as well as supplementary health insurance premiums, and is referred to as supplementary labour income. This cost is expressed as a percentage of payroll and is determined by dividing the supplementary labour income paid by employers in 2005 ($85.2 billion) by the total labour income paid to employees in that year ($679.4 billion). 13 In 2005, taxes and benefits are calculated by the Conference Board to be 12.5 per cent of payroll. a day was assumed to be 16 hours (24 hours minus eight hours for sleep), of which eight hours was spent at work. The study also assumed that, due to time constraints, smokers would consume the majority of their daily cigarette intake outside their working time, with only five cigarettes being consumed in an eight-hour workday. Of these five cigarettes, three would be consumed during employer-sanctioned breaks taken by all staff: lunch, one mid-morning and one mid-afternoon break. Combining these two elements, we have an average daily per-employee payroll cost of $ Multiplied by two additional days of absence for smoking employees, the annual cost to employers of a smoker for his or her absences is $323, an increase of $93 from (See Table 2.) EMPLOYEE PRODUCTIVITY The second part of the model quantifies the cost of cigarette breaks taken by smoking employees during the workday. In the 1997 report, the Conference Board specified that this cost applies only to employees who are unable to smoke in their immediate work area and must travel to another location to have a cigarette. 14 While this caveat still applies, it should be mentioned that, as a result of the legislative changes reviewed earlier in this report, this cost applies to a large majority of smoking employees. At the time of the original report, an average Canadian smoker consumed 19 cigarettes per day. For the sake of determining the loss of productivity to smoking breaks, Although the estimated number of cigarettes consumed during working time has not increased, many employees have to travel farther now to reach the place where they are permitted to smoke. In terms of lost productivity, smokers were assumed to take two smoking breaks on time not sanctioned by employers as rest time. These two breaks per day, averaging 15 minutes each, were treated as lost productive time when smokers would otherwise be working. The original model s conservative estimates are useful today. While the daily number of cigarettes consumed had dropped to 15.2 in 2004, the assumption that smokers consume five cigarettes during the workday, of which two are consumed during unsanctioned breaks, is reasonable enough to be used in the updated model. While no recent research has been done to test these assumptions, limiting the number of cigarettes consumed at work in such a fashion provides us with a reasonable basis for calculating the productivity cost, without overstating the case. The Conference Board of Canada 5

6 The length of the breaks themselves is worthy of some review, however. As mentioned before, more jurisdictions are moving to an entirely smoke-free environment in most public spaces. These bans often prevent employers from having an indoor smoking room or area. This leaves a large majority of smoking employees with no choice but to go outside the building to consume a cigarette. In the case of some health-care facilities, smoking employees may have to go even farther than that and leave the grounds of their workplace building. In the original model, it was assumed that an employee would take 10 minutes to consume a cigarette, and would spend five minutes of each break traveling to and from the area where employees may smoke. Given the increase in bans on smoking in public places and in bans on designated smoking rooms or areas 15 since 1997, it is reasonable to extend the amount of time employees now take to reach the place where they can smoke. We propose extending that travel time to 10 minutes per break, which prolongs the smoking break from 15 to 20 minutes. In total, in the updated model, smoking employees now spend 40 minutes every day consuming cigarettes outside sanctioned rest time. The average hourly wage, combined with payroll taxes and benefits, is used to calculate the cost of these smoking breaks to employers. The average hourly wage is calculated by taking the average weekly wage in 2005 ($717.50) 16 and dividing by a 40-hour workweek, to provide a figure of $17.94 per hour. As described in the previous section, the additional payroll cost to employers is 12.5 per cent of payroll for Hence, the total cost of wages and benefits to employers, expressed on an hourly basis, is $ This part of the model is based on the assumption that no productive work is done during smoke breaks. Assuming that smoking employees spend two-thirds of an hour every day consuming cigarettes, the daily cost to employers of lost productivity per smoking employee is $ Assuming 227 working days in the year (365 days minus 104 for weekends, 10 for holidays, 15 for vacation and nine for sick days), the annual cost of lost productivity per smoking employee is $3,053, an increase of $878 from the 1997 model. (See Table 3.) At the heart of this portion of the model is the assumption that time spent smoking a cigarette is time lost to otherwise productive work. It is worth offering a word of caution about this assumption: smokers can just as easily discuss matters of business over a cigarette as they can over a conference table. Similarly, documents can be Table 3 Calculating Lost Productivity Cost of Smoking Employees to Employers COST Prod = CIGS x TIME MINUTES x WAGE Average x (1 + BENEFITS and TAXES) x DAYS WORKED = $3,053 COST Prod CIGS TIME Annual loss of productivity (in dollars per employee) Average number of cigarettes smoked per day at work during non-sanctioned break periods (assumption: two) Time taken to travel to smoking area and consume cigarette (assumption: 20 minutes per break) MINUTES Number of minutes in an hour (60) WAGE Average BENEFITS and TAXES DAYS WORKED Average hourly wage (weekly wage of $717.50, divided by 40 hours) Payroll taxes and benefits paid by employer (supplementary labour income) expressed as a percentage of payroll Number of days worked per year Source: The Conference Board of Canada. 6 The Conference Board of Canada

7 read and issues considered during a smoking break. While employees are not at their workstation and, therefore, are likely not engaged directly in work tasks, the assumption that they absolutely are not working during any smoke break may not completely reflect reality. It is impossible to quantify this aspect of the model. We merely offer this observation for consideration. Finally, the assumed number of cigarettes usually consumed at work will likely require revisiting as the average number of cigarettes consumed in a day decreases. The highly conservative estimates from the last study allowed us to continue to use five workday cigarettes as our basis for determining lost productivity. Should future statistics reveal that Canadian smokers consume fewer than 12 cigarettes per day, the assumption of five cigarettes consumed during work hours would have to be reassessed. INSURANCE COSTS In developing the previous model, the Conference Board study looked at employer-sponsored insurance costs and the impact that smoking employees have on insurance premiums. The reason to include this part of the model was based on the idea that smokers, with more health problems related to their habit, would make more claims for health benefits and, therefore, increase premiums. As a result, employers that implement smoking cessation programs may do so in the hope of keeping control of their benefit costs. However, insurance companies have no way of recognizing the programs, or the number of employees who complete them, as being a reason to reduce insurance premiums. Certainly, when individual smokers apply for life insurance, insurance companies are better able to determine an appropriate premium for insuring such individuals. In the previous Conference Board study, a premium discount of 35 per cent for non-smokers individual life insurance policies was used to determine which employer-paid insurance costs might be attributable to smoking employees. 18 This approach reflects the logic that smokers will likely be more costly to insurance companies as they experience more illnesses and, as a result, make more claims for reimbursement. However the logic, while sound, is not reflected in practice. Insurance companies do not take into account the presence of a specific number of smokers in the workforce of a client, when determining premiums. Currently, there does not appear to be evidence that employers with greater numbers of smoking employees pay higher health insurance premiums. The notion that smokers use health services more often, and incur higher medical costs as a result, has been shown to be valid. For example, in 2002, the United States Centers for Disease Control and Prevention published a study that estimated smoking adults were the cause of almost US$75.5 million in medical expenditures attributable to smoking in 1998 (or US$1,623 per smoker). 17 While we know that smokers are at higher risk of contracting disease and illness, what is not clear is the impact on employer insurance costs. However, since insurance providers have no way of knowing which or indeed how many employees are smokers, it can be reasonably assumed that health insurance premiums are not based on the number of smoking employees in an organization. Any attempt by providers to collect such personal information would likely meet with resistance from workers. In light of this information, an attempt was made to approach this component of the model from another direction: the impact that smoking cessation programs have on employer costs. EAP providers are increasingly also suppliers of workplace wellness programs, of which tobacco cessation is a part. The key selling points of workplace wellness are that healthier employees will have fewer absences, be more productive and be less expensive to insure. The latter argument comes from logic similar to that expressed above: healthy employees will use health benefits less and, therefore, will help contain insurance costs. By contrast, a search of the literature reveals that very little is known about the impact that these programs have on employer-paid insurance premiums. The Conference Board of Canada 7

8 The reasons for this lack of knowledge lie mostly with the difficulty in identifying factors that would encourage an increase or decrease in premiums. First, many organizations introduce tobacco cessation along with a suite of other wellness initiatives (i.e., exercise and weight loss programs), so it would be difficult to determine what (if any) reductions in insurance costs are due specifically to smoking cessation. Second, while it would be easy to get a sense of how many employees in an organization successfully quit smoking, it may take years to determine how their efforts will affect their use of health benefits, compared with smoking employees. Facilities costs decreased because designated smoking areas have been banned in many workplaces. This leaves us in a quandary: do we do as the previous study did, and apply an individual insurance policy approach, which may not reflect employers reality, but does reflect what we know about smoking and health? Or do we accept that, for now, there is no evidence to suggest that smoking employees impact the setting of health premiums? Today, except in restaurants, bars and other similar establishments in a handful of provinces, smoking is prohibited in most workplaces. While some organizations have installed outdoor shelters for the purpose of accommodating smokers, most have not. The latter have installed ashtrays at entrances to their workplaces. In an effort to encourage employees to drop the habit altogether, some employers have even located smoking facilities (i.e., ashtrays or shelters) in a particularly inconvenient area. 19 Ultimately, in determining what costs to employers should be included in this section of the model, a conservative approach was deemed best. Calculating the costs of a DSR or DSA makes little sense at this point, given the small number of workplaces that are allowed to install such facilities. Furthermore, while some employers may choose to build a more elaborate shelter for smokers to use, that action is simply that: a choice. Given that the literature suggests employers are seeking to discourage smoking habits, most organizations will likely choose to install two or three $150 ashtrays instead of a $5,000 shelter. Today, the main smoking facilities costs borne by employers are for commercial ashtrays, and the cleaning of the ashtrays and smoking area. The latter option appears to be the most feasible at this time. Until we understand more about wellness programs and their impact on employer-sponsored insurance premiums, the only safe route to travel is the cautious one. The updated model will, therefore, not include a calculation to determine the insurance costs to an organization of employing a smoker. SMOKING FACILITIES COSTS In 1997, there were enough jurisdictions in Canada that allowed the presence of designated smoking rooms (DSRs) and designated smoking areas (DSAs) within a public building to warrant a component of the model that determined the cost to an employer of building and maintaining these facilities. As a result, the previous model took into account installation and maintenance costs for facilities that accommodated workers inside the workplace. These costs included building the facility, installing appropriate ventilation and cleaning the facility on a regular basis. A review of vendors of office equipment shows that commercial ashtrays can range in price from $50 to $375, with a median price calculated at $ per ashtray. We assume that most organizations limit the number of ashtrays installed on their property to an average of three, for aesthetic and crowd-control purposes. The number of smokers this would appropriately serve is debatable, but for the purposes of this study, we assume the installation of three ashtrays for every 25 smokers the equivalent of one DSR or DSA in the former model. This would amount to an initial capital cost of $ With regard to maintaining them once they are installed, conversations with a facilities expert revealed that there is very little in the way of maintenance costs for commercial ashtrays, in contrast to maintaining a DSR. 20 In the previous study, the cost of a DSR/DSA was prorated per employee and amortized over 10 years. In the case of ashtrays, amortization would never be applied to what is considered to be a small capital investment. With that in mind, if we assume three ashtrays per employer, all three will not need to be 8 The Conference Board of Canada

9 replaced on an annual basis. Moreover, most facilities have already installed outdoor ashtrays as a matter of course: smokers entering a non-smoking space need somewhere, other than a parking lot or sidewalk, to dispense with their cigarette butts. To deal with this problem, we assume the replacement of ashtrays in three years time ashtrays see heavy day-to-day use and, hence, will likely require replacement more quickly than a DSR. We do not do a proper amortization, as explained immediately above. However, we break up the capital cost of the ashtrays over three years, so that the annual cost of three ashtrays is $ The peremployee annual cost is $8.50. In addition to the capital cost of three ashtrays, cleaning is also required. Ashtrays and the surrounding area will likely need to be cleaned on a daily basis, the key tasks being the emptying of cigarette butts and sweeping of the immediate area around the ashtrays. We estimate the weekly time required to undertake these activities to be 20 minutes 10 minutes less than the time required to clean a DSR/DSA. This time is multiplied by the average hourly wage of an individual in administrative and support, waste management and remediation services. 21 This amount is then multiplied by 52 weeks to get an annual amount ($83.40), which is subsequently divided by 25 employees, to get an annual cleaning cost per employee of $ In total, the annual per smoking employee facilities costs to employers are $ (See Table 4.) Table 4 Calculating Smoking Facilities Costs of Smoking Employees to Employers Formula 1 (Ashtrays) ASHTRAY = ($ASHTRAY) / SMOKE-EMP = $8.50 (ASHDURA) ASHTRAY Overall cost of ashtrays to employer (dollars per employee) $ASHTRAY Median annual cost of three ashtrays (assumption: $212.50) ASHDURA Lifespan of an ashtray (assumption: three years) SMOKE-EMP Number of employees served by one ashtray (assumption: 25) Formula 2 (Cleaning Time) ASHCLEAN = ((CLEANTIME/MINUTES) x WAGECLEAN x (1 + BENEFITS and TAXES) x WORKYEAR) = $11.34 SMOKE-EMP ASHCLEAN CLEANTIME Cost of cleaning ashtrays in the workplace (dollars per employee) Average amount of time taken to clean ashtrays (assumption: 20 minutes) MINUTES Number of minutes in an hour (60) WAGECLEAN Average hourly earnings for administration and support, waste management and remediation services ($ divided by 40 hours) WORKYEAR Number of weeks in a year (52) BENEFITS and TAXES Payroll taxes and benefits paid by employer (supplementary labour income) expressed as a percentage of payroll SMOKE-EMP Number of employees served by one ashtray (assumption: 25) Total smoking facilities costs ASHTRAY + ASHCLEAN = $20 Source: The Conference Board of Canada. The Conference Board of Canada 9

10 SUMMARY OF EMPLOYMENT COSTS ASSOCIATED WITH SMOKING EMPLOYEES FOR EMPLOYERS It is important to acknowledge that wage inflation plays a key role in the increase in the absenteeism cost from 1997 to 2006, and a smaller role with regard to the productivity loss in the time between the two studies. The increase in average daily wages accounts for 70.2 per cent and 31.2 per cent of the increases in absenteeism and productivity costs, respectively. 22 (See Table 5.) In the case of productivity cost, an increase in lost productive time is the chief reason that the cost increased, vis-à-vis additional time for travel to a smoking venue. An argument could be made that bans on smoking within the workplace have served to increase the employer cost by forcing employees to travel farther to consume a cigarette, but this argument tells only part of the story. Smoking bans also remove second-hand smoke from the workplace, which will have a positive effect on overall employee health. They also reduce employer smoking facilities costs by removing the need for a DSR and special ventilation. APPLYING THE EMPLOYER COSTS MODEL TO OTHER INDUSTRIES The Conference Board was also asked to explore the possibility of applying the above employer costs model to specific industries, provinces or groups of workers. There are two ways in which this might be done. The component nature of the employer costs model allows for flexibility in updating the model to reflect cost increases (i.e., wages). Statistics Canada provides wage data by job type, industry, sector and province. Average wage data for any of these categories can be applied to the absenteeism and lost productivity components of the model to obtain a cost figure for smokers in a specific category. In addition, smoking occurrence data could be used to determine a per-workplace cost by province, industry and sector, or job type. Assuming that reliable data on smoking occurrence by the above categories exist, information could be targeted to particular employers, using more specific figures on the costs of smoking. Table 5 The Annual Costs of Employing Smokers, as Calculated in 1997 (1995 $ per employee) Cost Factor Cost in 1997 Cost in 2006 Increased absenteeism Decreased productivity 2,175 3,053 Increased life insurance costs 75 0 Smoking facilities costs Source: The Conference Board of Canada. The value of this second measure will depend on the prevalence of smokers within their industry, compared with others. If a particular industry has a higher smoking occurrence than the national average, demonstrating to employers in that industry that their per-organization smoking costs are higher than others can help them see the value in implementing smoking cessation programs. CONCLUSION It is clear from this study that smoking does have an impact on the bottom line. Organizations seeking to remain competitive in today s global economy can see how addressing a key employee health issue can boost their organization s productivity. What is also apparent is that smoking is only one of a number of employee health issues that can increase employer absenteeism and productivity costs. Ultimately, employee health is determined by day-today choices regarding diet, physical activity and other factors. In responding to employee health issues, employers are taking a holistic approach to workplace wellness initiatives, in order to influence their workers lifestyle choices. Tobacco cessation, weight loss, exercise initiatives, healthy eating seminars and stress reduction are all common components of an all-encompassing employee health initiative. Employers are seeking a multi-faceted approach to improving employee health because employee productivity and performance are not affected by tobacco use alone. Heart conditions created by obesity will also have an impact on absenteeism and productivity costs. Moreover, several aspects of poor employee health may combine with tobacco use to create larger absenteeism and productivity issues than smoking alone. 10 The Conference Board of Canada

11 A study conducted at Dofasco Steelworks in Hamilton, Ontario, showed that obese workers who smoke lost 106 hours per year in absenteeism twice the amount of an average-weight non-smoker. In the end, it was this higher figure, rather than information on how one problem or another affected absenteeism, that convinced Dofasco to implement one of Canada s largest and oldest employee health initiatives. 23 Rather than focusing on one issue, while issues of obesity and stress continued to take their toll, Dofasco chose to approach all of these health problems in one all-encompassing program, to have a larger positive impact on employee health. Ultimately, providing employers with knowledge about how various aspects of employee health can contribute to higher costs will help them build the business case for employee health. By understanding the impacts individual health issues have on their organizations, and how those issues interact to worsen employee performance problems, employers are better positioned to take action on the overarching issue of employee health. 1 The True Value of EAPs, Benefits Canada [online]. (Summer 2001), [cited March 1, 2006]. Available from Ebsco Information Services, Ipswich, Massachusetts. 2 Associated Press, Some Smokers Pay More for Health Benefits, Associated Press [online]. (February 17, 2006), [cited March 27, 2006]. Available from Ebsco Information Services, Ipswich, Massachusetts. 3 Statistics Canada, Employment by Industry: 2004 Data (Ottawa: Statistics Canada, September 2005). 4 Tobacco Control Program, Smoking status and average number of cigarettes smoked per day, by age group and sex, age 15+ years, Canada 2004, Canadian Tobacco Use Monitoring Survey (CTUMS) (Ottawa: Health Canada, 2005), p Ibid. 6 Ibid. 7 The Conference Board of Canada, Smoking and the Bottom Line (Ottawa: The Conference Board of Canada, 1997), p Note that this report does not suggest there is a causal link between employee absenteeism and smoking, specifically. We merely note what the literature indicates: smokers tend to take more days for illness compared with non-smokers. 9 Surgeon General of the United States, Surgeon General s Report on Tobacco 2004 [online]. [Cited February 24, 2006.] Available from the Centers for Disease Control and Prevention. See Chapter S.P. Tsai, S.P. Wen, S.C. Hu, T.Y. Cheng and S.J. Huang, Workplace Smokingrelated Absenteeism and Productivity Costs in Taiwan, Tobacco Control 14 [online]. (2005) [cited February 24, 2006]. Available from the Centers for Disease Control and Prevention, p Statistics Canada, Canadian Tobacco Use Monitoring Survey (Ottawa: Statistics Canada, 2004). Public use micro-data files. 12 The Conference Board of Canada, Canadian Economic Forecast [online]. (December 2005), [cited February 24, 2006]. Available from The Conference Board of Canada, Table Ibid. 14 Conference Board, Smoking and the Bottom Line, p Non-Smokers Rights Association, Compendium of 100% Smoke-free Public Place Municipal Bylaws (Toronto: Non-Smokers Rights Association, July 2005). 16 The Conference Board of Canada, Wages and Labour Income, [online]. (December 2005), [cited February 24, 2006]. Available from The Conference Board of Canada, Table Centers for Disease Control and Prevention, Annual Smoking-Attributable Mortality, Years of Potential Life Lost and Economic Costs United States, , Morbidity and Mortality Weekly Report, 51, 14 [online]. (April 12, 2002), [cited February 24, 2006]. Available from the Centers for Disease Control and Prevention, p Conference Board, Smoking and the Bottom Line (Ottawa: The Conference Board of Canada, 1997), p This trend is being led by hospitals in Canada, many of which have even banned outdoor smoking on hospital property. 20 Carole Smith, Facilities Manager, The Conference Board of Canada. Ms. Smith has recently undertaken a review of smoking facilities and costs. Interview by Christopher Hallamore. February 24, Statistics Canada, Payroll Employment, Earnings and Hours, The Daily [online]. (January 26, 2006), [cited February 24, 2006]. Available from Statistics Canada. Average weekly earnings in November 2005 for Administrative and support, waste management and remediation services : $ ; hourly wage (weekly earnings divided by 40 hours): $14.53; multiplied by cost of employment ( per cent): $ It should also be noted that the supplementary labour income costs to the employer decreased from 15 per cent of wages in 1997 to 12.5 per cent in This would have had a deflationary impact on the 2005 costs, compared with the previous study. 23 Terry Goveia, Clocking In, Working Out, Canadian Healthcare Manager [online]. (October 2003), [cited February 24, 2006]. Available from Ebsco Information Services, Ipswich, Massachusetts, p. 31. The Conference Board of Canada 11

12 Smoking and the Bottom Line: Updating the Costs of Smoking in the Workplace by Chris Hallamore About The Conference Board of Canada We are: A not-for-profit Canadian organization that takes a business-like approach to its operations. Objective and non-partisan. We do not lobby for specific interests. Funded exclusively through the fees we charge for services to the private and public sectors. Experts in running conferences but also at conducting, publishing and disseminating research, helping people network, developing individual leadership skills and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency, although we are often hired to provide services for all levels of government. Independent from, but affiliated with, The Conference Board, Inc. of New York, which serves nearly 2,000 companies in 60 nations and has offices in Brussels and Hong Kong. Publication E-copy: complimentary Printed copy: $ Smyth Road, Ottawa ON K1H 8M7 Canada Tel. (613) Fax (613) Inquiries The Conference Board, Inc. 845 Third Avenue, New York NY USA Tel. (212) Fax (212) The Conference Board Europe Chaussée de La Hulpe 130, Box 11, B-1000 Brussels, Belgium Tel Fax The Conference Board Asia Pacific 2802 Admiralty Centre, Tower 1, 18 Harcourt Road, Admiralty Hong Kong SAR Tel Fax The Conference Board of Canada* Printed in Canada All rights reserved ISSN ISBN Agreement No *Incorporated as AERIC Inc. For more information, please contact us at the numbers listed above or contactcboc@conferenceboard.ca. This publication is available on the Internet at Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal or tax advice.