Besides being a human tragedy, a workplace injury can have a big impact on a company’s bottom line.
No good employer wants to see a team member injured on the job — it's just not something you forget easily. But if the human element isn't enough reason to stress safety in the workplace, here's another: Accidents can be very expensive.
Just how expensive? OSHA helps you get a feel for the costs — all the costs — of an accident serious enough to keep an employee off the job for a spell. The "$afety Pays" program is an interactive computer tool that lets you estimate the costs of an occupational injury or illness and its effect on profit.
It makes a calculation of the average direct cost of an injury or illness, and an indirect cost multiplier. Then it uses your company's profit margin (as a percent of sales) to project the amount of revenue you would have to generate to cover the accident costs. You can find the tool at www.osha.gov/dcsp/smallbusiness/safetypays/index.html.
Take it for a spin
Let's take a run through the tool based on a theoretical employee named Joe. The first step is to select an injury type. Let's say that Joe suffered a fracture because of an unsafe condition on a job site. We select that item from the drop-down menu.
Now we enter the company's profit margin — let's say 5 percent. And finally we enter the number of instances — just one. When we click on "Calculate," the tool brings up a breakdown of the costs.
The estimated direct cost for a fracture (average) is $37,911, the average indirect cost is $41,702, and the total is $79,613. Based on a 5 percent profit margin, it would take $834,000 of additional revenue to cover only the direct cost of the accident, and $1,592,000 to cover both the direct and indirect costs.
Source of the numbers
The extent to which your company pays the direct costs depends on the nature of your workers' compensation insurance policy. The indirect costs always come out of your company's pocket.
Where do these cost figures come from, and what do they include? Well, the injury and illness cost estimates are derived using data from the National Council on Compensation Insurance, Inc. (NCCI). The information is based on statistical reports submitted for 2004.
The indirect cost estimates are taken from the Business Roundtable publication, Improving Construction Safety Performance, and are based on a study conducted by the Stanford University Department of Civil Engineering.
The magnitude of indirect costs is inversely related to the seriousness of the injury. The less serious the injury, the higher the ratio of indirect costs to direct costs (four or five times higher). For more serious injuries, indirect costs will average one or two times the direct costs of the injury.
While they account for the majority of the true costs of an accident, indirect costs are usually uninsured, and therefore unrecoverable.
What are indirect costs?
Indirect costs are those that go above and beyond the actual cost of treating Joe's injury and compensating him. They include:
Any wages paid to Joe for absences not covered by workers' compensation
The wage costs related to time lost through work stoppage after the accident occurred
Administrative time spent by supervisors investigating and reporting on the accident
The cost of training a temporary replacement for Joe
Lost productivity related to the learning curve new or temporary employees always face
The cost of accommodating Joe and his injury in the workplace, if necessary
Replacement costs of damaged material, machinery and property
Clearly, the cost of a workplace accident is steep, and it comes on top of having to tell Joe's spouse and family why he is not coming home healthy. Perhaps looking at all the costs — emotional and financial — provides an incentive to review your safety program, and improve it if you need to.