Workplace sexual harassment discussions often centre around the physical and emotional costs to individuals who have experienced it, rather than the impact it can have on a business’ bottom line – perhaps because it invokes a powerful emotional response.
Whilst the correlation between business performance and sexual harassment may not be apparent on the surface, when you begin to dig deeper and look at the statistics, CEOs and business leaders may be surprised to learn of the many consequences high levels of sexual harassment can have on an organisation and that it’s an indication of a poor workplace culture.
You might believe that incidences of sexual harassment in your organisation are isolated and infrequent episodes which do not affect the bottom line. Or worse, you may consider it an ‘unpleasant’ cost associated with employing people.
The fact is, there’s a much larger cost of workplace sexual harassment to organisations than originally meets the eye and it’s the job of CEOs and senior leaders to take notice and introduce measures to address and avoid it. Morally, it’s the right thing to do for your people and your culture, but as of October 2024 and the introduction of the Workers Protection Act, it will also be your legal responsibility to actively prevent sexual harassment at work.
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Direct and indirect costs of workplace sexual harassment
Companies can be impacted commercially by failing to prevent harassment at work, which doesn’t just stem from specific incidents but is created by fostering a culture where harassment and sexual harassment is tolerated. Whilst the economic cost may be difficult to calculate, there are several direct and indirect costs associated which all have a significant commercial impact, which we explore below.
Compensation payments and the cost of lost time
The most obvious cost to organisations when it comes to workplace sexual harassment are the compensation payouts, settlement agreements and fines associated with sexual harassment claims.
The UK government estimates that the average cost of a sexual harassment tribunal claim can range from £27,000 to £45,000 but is often a lot higher, occasionally reaching millions.
Sexual harassment claim compensation is calculated on financial losses, injury to feelings and in some cases personal injury or aggravated damages, plus a compensation uplift if the employer has failed to follow the appropriate ACAS Code of Practice, which can significantly increase compensation awards.
From October 2024 the new Worker Protection Act will give tribunals the power to increase compensation by up to 25% if they find an employer has not taken ‘reasonable steps’ to prevent sexual harassment.
Many organisations opt to settle claims outside of tribunals to minimise costs and the impact of any bad press. These costs are estimated to be between £10,000 to £15,000.
The costs above do not consider the amount of lost time spent managing sexual harassment claims, from the administration time, time spent on the case by senior leaders and case managers, along with legal advice and reputation. The UK government estimates the average cost of time spent per case of £13,000 (2019/20).
When businesses invest in their culture, sexual harassment rates fall for a few reasons:
This type of behaviour is not tolerated and is stamped out quickly.
- This type of behaviour is not tolerated and is stamped out quickly.
- People feel comfortable speaking up, knowing they will be believed, and their complaints will be taken seriously.
- Everyone feels included and respected. They trust each other and senior leaders.
Workplace culture is a key contributor to sexual harassment at work – the way CEO’s, Business Owners and Senior Leaders act and the behaviours they tolerate, sets the tone for the whole organisation. Culture can be difficult to ‘see’ because you are in it every day, so behaviours become ‘normal’.
That’s why it’s essential to step back and view your culture objectively and truly understand the types of behaviour taking place in your organisation. That’s where software like Culture Shift comes into its own. When you open communication channels and create a new way for people to report their experiences anonymously, you begin to get a true picture of the culture in your organisation. When you really understand what is happening you can take informed preventative action and drive long-term change.
Cost of suspending employees
Unless otherwise stated in an employment contract, employees who are suspended during an HR investigation or disciplinary process receive full pay. There’s no legal timeframe on suspension but it usually lasts for as long as the matter is being investigated which could take weeks or months gathering evidence and interviewing relevant parties.
Last year it was revealed local authorities in England and Wales spent more than £1.7million to cover the wage cost of employees who had been suspended after allegations of sexual harassment.
Culture Shift’s workplace reporting platform can not only help speed up the process of gathering evidence in HR investigations, but it can also drive long-term preventative action and cultural change. Our built-in case management system allows you and your team to manage and track cases efficiently, whilst our AI powered Name Matching function links reports together, helping you to gather evidence and ensure repeat incidents are quick and easy to identify. When you understand the type of behaviour happening, if it’s caused by one person or in a specific area of the business you can put preventative measures in place for example sexual harassment training.
Reputational damage
Beyond the immediate financial burden of compensation payments, failing to handle sexual harassment incidents and creating a culture of tolerance can lead to your employees losing trust in you, unwanted media attention and damage to your brand’s reputation, with long lasting financial consequences.
Losing the trust of your employees
When employees’ lose trust in you, they lose confidence in your ability to deal with and prevent sexual harassment claims. They may distance themselves from your organisation, disengaging with work and spreading negativity. Disgruntled employees are more likely to speak badly of your company, which is particularly easy to do in the age of social media which can also damage your reputation.
Negative media attention
If you find yourself at the centre of a high-profile sexual harassment case and it hits the local or national press, the negative media attention surrounding the issue can cause a decline in consumer confidence, potential product boycotts and a drop in revenue.
Increased marketing costs
It’s likely you’ll need to invest heavily in PR and marketing to rebuild your reputation in the marketplace.
Partnership and referral challenges
As the saying goes, ‘it’s not what you know, it’s who you know’. You may find it challenging to secure partnerships or referrals because potential partners want to distance themselves from organisations that fail to look after their people.
Loss of contracts
Buyers may terminate contracts, suppliers may want to stop working with you and you may not get the opportunity to re-tender for contracts because you’re perceived as a company not to be associated with.
Difficulties seeking investment or investors distancing themselves
The general reputation of a company and how it treats its employees are the two most important non-financial factors which investors take into consideration when deciding where to invest.
In fact, our own research found that 71% of investors wouldn’t invest in an organisation that had a problematic workplace culture.
Performance & productivity issues
Workplaces experiencing ongoing problematic behaviour such as bullying and harassment of any kind, face deep-rooted performance and productivity issues.
The threat of sexual harassment and hostile work environments, and stress caused by experiencing this type of behaviour at work, whether first hand or as a witness can drastically decrease employee morale and productivity. It shouldn’t come as a surprise that people don’t do their best work when they are stressed, distracted or experiencing harassment.
More concerningly for organisations are the statistics around reporting sexual harassment. Most employees do not report sexual harassment. Whilst 40% of women and 18% of men have experienced some kind of unwanted sexual behaviour in the workplace, only 1 in 3 women tell their employer when it’s happening.
Employees fear the repercussions of speaking up and issues can fester, killing productivity and decreasing morale over time.
Some of the reasons for not reporting are:
- 39% felt they would not be believed or taken seriously
- 37% thought it would negatively impact their relationship at work
- 25% thought it would harm their career progression
One of the biggest benefits a workplace reporting platform like Culture Shift can bring to your organisation is that it encourages employees to report issues anonymously. You may be surprised to learn what people are seeing and experiencing when you create a new channel for communication where their name isn’t attached to the incident.
When you remove this barrier to reporting, it’s likely you’ll receive an increased number of reports, giving you access to more data which can be used to identify trends. With a clearer picture of what is actually happening in your organisation, you can take action to prevent it and begin to build a culture where people are unafraid to speak up.
Recruitment costs and retention challenges
When workplaces tolerate sexual harassment and let issues go unaddressed, it all contributes towards a toxic culture where employees don’t want to stick around. More and more employees refuse to tolerate bad behaviour at work and are happy pursuing other opportunities elsewhere.
This can often cause a snowball effect with a mass exit of employees, causing retention challenges for organisations, losing top talent who can’t easily be replaced. Talented job seekers are hesitant to apply for roles when they’re aware the company fails to address sexual harassment.
The cost of recruitment is also high. You might need to use a recruiter to hire for your vacancies who charge 20-30% of an employee’s starting salary. And that doesn’t factor in the time spent reviewing CVs, interviewing candidates and onboarding them into the workplace.
When you invest in building a positive workplace culture and hold people accountable for behaviour that is damaging it, retention rates improve and it’s easier to hire top talent because people want to work with you.
Increased regulatory scrutiny and compliance costs
Larger organisations or those who operate in regulated industries can find themselves under more scrutiny. For example, the Equality and Human Rights Commission (EHRC) can require organisations to enter into a legally binding Section 23 Agreement, requiring organisations to introduce key measures to address sexual harassment, whilst regulators such as the Solicitors Regulation Authority (SRA) have specific guidance which includes the need to report instances of sexual misconduct.
Complying with these additional measures takes time and resources, taking senior leaders and teams away from other projects, reducing productivity. Culture Shift’s workplace reporting software can be implemented within 6 weeks, so whilst there is a small piece of upfront work needed, it can save you time and resources in the long run.
Transform your workplace culture with Culture Shift
When you consider the above points, it’s easy to understand the financial impact sexual harassment can have on your organisation. Businesses can see reduced revenue levels from the loss of contracts, referrals and customer demand but also from low levels of team morale and lost productivity through to recruitment and retention challenges.
Preventing sexual harassment at work and improving workplace culture has many benefits for businesses, not just a financial one. Many organisations already recognise the human and business costs of sexual harassment and are acting to address it.
Whilst the introduction of the new Workers Protection Act may seem like an additional burden for employers, it provides you with a fantastic opportunity to transform your workplace culture, from improving communication, accountability and reporting processes which all help to create a more respectful work environment for everyone. Download our 10-step checklist to the Worker Protection Act.
Culture Shift is dedicated to building solutions that create positive change in organisational culture. Our platform offers anonymous reporting and case management tools to help organisations effectively prevent and respond to incidents of harassment and bullying. By providing data-driven insights and user-friendly reporting systems, we empower organisations to create safer, more inclusive workplaces.
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Sources
https://www.icrw.org/wp-content/uploads/2018/08/ICRW_SBHDonorBrief_v4_WebReady.pdf
https://committees.parliament.uk/work/6032/sexual-harassment-in-the-workplace-inquiry/publications/
