Direct Versus Indirect Costs of Workplace Injuries

in Workers-compensation

It's been estimated that employers pay almost $1 billion per WEEK in direct costs related to workers' compensation. What's even more astounding is according to the National Safety Council, the indirect costs exceed the $1 billion mark to a tune of $4 billion per week! With these facts in mind, is this really the time to cut your safety budget?

Did that raise your attention level? I hope so, because this problem doesn't rest on the shoulders of the insurance companies. It rests on the shoulders of every business owner and something needs to be done. Now.  

One of the first steps in controlling this ever growing giant is to educate the very people in charge of their company's workers' compensation and safety programs. Many of these individuals are aware only of the direct costs; i.e., what they pay for their workers' compensation insurance.  

We all know keeping your employees safe and healthy is the number one priority, or should be, of every company across the country. However, companies need to be competitive in order to be profitable and remain a significant player in the marketplace.  Yet sometimes, companies looking to cut costs will consider slashing its safety and workers' compensation budget.

With that said, this move may end up costing the company more money than what it could potentially save. Workers' compensation and safety budgets are too often viewed upon as a shade of gray. Meaning, it's very difficult to truly see value and monitor the rewards of your efforts in hard dollars. The only thing black and white is the dollars going out in workers' compensation premiums.  

As we just described above, the direct costs of safety and workers' compensation are the premiums paid, safety investments, and incentive programs. The indirect costs can be described as all unbudgeted costs associated with an injury in order to get the employee back to pre-injury status. With a direct versus indirect cost ratio of 4:1, the indirect costs need to be identified to understand the implications of each injury that occurs. Some of these costs include, but not limited to:

Damage to equipment, machinery, materials, facility, etc.
Production downtime
Lower employee morale
Loss of products or services
Delays in shipment or filling orders
Additional overtime
Managers' lost time resulting from the accident. Also includes inspections, investigations, meetings, and administration
Employees assisting with the accident. Includes administering first aid, and witness interviews
Hiring and training replacement workers
Wages of replacement workers
Other non-productive time incurred by the injured employee. Includes all medical related appointments
Potential OSHA penalties
Attorney fees

That's quite a list and yet it still doesn't encompass every indirect cost. Understand that for each injury that occurs in your workplace, the increase in your workers' compensation premiums is dwarfed by all of the indirect costs associated with that injury. Now is the time to take the necessary steps to limit, or better yet, eliminate all injuries to ensure your company's maximum productivity and profitability.

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Jeff Slusser has 1 articles online

Jeff Slusser is a Certified Workers' Compensation Adviser and the founder and CEO of Jarsity.com. Jarsity helps small & mid size businesses reduce their cost of insurance through education and training.

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Direct Versus Indirect Costs of Workplace Injuries

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This article was published on 2010/04/01