Workplace conflict can cost UK employers around £28.5 billion every year. This astounding figure comes from the latest ACAS report, Estimating the Costs of Workplace Conflict, which I have greatly summarised here.
That cost doesn’t surprise me. I’ve been telling my clients for years that conflicts can escalate quickly and become very costly if not dealt with promptly. When conflicts in the workplace occur, it is important to resolve them as quickly as possible for two main reasons:
- Any bad feelings, whether they come from a place of professional or personal disagreement, need to be worked out quickly. This prevents any negative ramifications within the team, department or your whole business and helps to put you in the position of being a good, proactive boss.
- When conflicts are left to fester, they can escalate. The longer you leave them, the more expensive they become. Nearly half a million employees resign each year because of conflict. Handling disagreements and complaints early before employment relationships are damaged can save a lot of time and money.
Workplace conflict often leads to stress, anxiety or depression, which has a knock-on effect on productivity. Effective conflict management is critical in maximising productivity and efficiency in organisations.
The ACAS report also highlights that conflict will be more likely as organisations adapt to a new normal following the coronavirus pandemic. Problems suppressed during the crisis will start to rise to the surface and will need to be effectively dealt with.
The escalating costs of workplace conflict come from the following situations:
Illustration source: ACAS report Estimating the costs of workplace conflict
A) Resignation, Absence and Presenteeism
These are the organisational costs incurred through impacts on the individuals involved in an isolated conflict or relationship breakdown, whether between two employees or a manager and a team member. This includes the costs of resignation, absence and presenteeism, where individuals continue to work despite being unwell as a direct result of conflict at work.
According to the CIPD Workplace Conflict Survey (2019), most employees remain with their employer with only 5% resigning and 9% taking time off as sickness absence. But the biggest impact was felt with 40% being less engaged and motivated, and 56% reporting stress, anxiety or depression as a direct result of the conflict.
The costs were estimated as follows:
- Recruiting replacement employees through resignation – £14.9 billion a year.
- Sickness Absence – on average, £148 per working day or £2.2 billion a year.
- Presenteeism – the report authors calculated productivity loss by estimating a performance loss percentage combined with median wage data. They estimated that the average productivity drop is 12% per employee for 17.2 days, equating to an estimated lost productivity cost of £589 million each year. Arguably, if all employees experiencing presenteeism see the same fall in productivity, this would total £2.3 billion each year.
B) Informal Resolution
These are the costs incurred when spending time attempting to resolve issues through informal discussion with a manager, HR practitioner and/or trade union representative.
- Informal discussion with the other party – this is the ideal response. The time taken in an informal discussion is, on average, 30 minutes, so costs are relatively small.
- Discussion with line manager, HR or employee representative – considered a positive attempt at early intervention, around 54% of employees tend to discuss the conflict with any or all of these people. If each discussion takes an average of 1 hour, that cost includes the employee’s time and manager’s time (estimated using median gross hourly pay from ASHE, 2019), the estimate costs are £155 million, £43 million and £17 million respectively. Of course, there is some overlap as almost half those who discussed the conflict with HR also discussed it with their line manager.
- Workplace mediation – this requires trained, qualified mediators and can be challenging for participants. However, it’s still a better alternative than a formal grievance procedure at an average conservative estimate of £1,500, or 1.5 days of a mediator’s time.
C) Formal Procedure
For around 12% of conflict cases that cannot be resolved through informal discussion, formal processes or procedures may be activated. These include disciplinary action, grievance processes and workplace mediation.
- Employee grievances – research suggests that there are around 374,760 formal grievances, taking an average of five management days, equating to a cost of approximately £950 and a total cost to employers of £356 million.
- Disciplinary cases – according to the 2011 Workplace Employment Relations Study (WERS), disciplinary sanctions were 4.73 per 100 employees and dismissals 1.54 per 100 employees, translating into just under 1.7 million disciplinary cases per year. On average, a disciplinary case takes up six days of management time not including the cost of facility time in unionised establishments or engagement by the parties to dispute. Overall, the estimated average cost of each disciplinary case is approximately £1,141, resulting in an economy wide total cost of £2 billion.
It was noticed that respondents who went through either grievance or disciplinary procedures also reported a range of negative wellbeing and productivity impacts, together with resignation and absence.
D) Litigation
If the issue is still not resolved, the employee may escalate the issue by submitting an early conciliation (EC) notice and potentially seek legal redress through an employment tribunal (ET) claim. The CIPD survey showed that only 1.4% of conflicts involve an ET claim being filed. However, of those that did progress, costs were estimated as follows:
- Management time – the total estimated cost of management time is £282 million.
- Legal and other representation costs – around £264 million each year.
- Compensation payments – the total cost of settlements and compensation to employers is estimated at £225 million.
- Adding together the various components above, the annual cost of employment litigation to employers amounts to approximately £800 million.
If you need some help to nip conflict in the workplace in the bud before it escalates, or if you have any other HR queries, do call me on 0118 940 3032 or click here to email me.