November 30, 2021
Direct and Indirect Costs of Workplace Injuries
The total cost of workplace injuries amounts to billions of dollars every year. Understanding these costs and how they impact a company’s bottom line is critical to ensuring that safety initiatives receive the appropriate attention and support from company leadership and throughout the organization.
The two types of costs usually associated with workplace injuries are direct and indirect costs. Many occupational safety and health professionals use an iceberg analogy to describe these two costs. The direct costs are compared to the tip of an iceberg; these costs are usually visible and more obvious. The indirect costs are compared to the submerged portion of the iceberg, being less visible and obvious.
Direct costs of workplace injuries are also considered insured costs which are covered by workers’ compensation insurance. Indirect costs are usually uninsured and viewed as additional costs associated with injuries. It is important to note that many estimates have described indirect costs to be much greater than direct costs. Elaborate estimates put indirect costs at 4-6 times that of direct costs, with more conservative estimates at 2-4 times. Irrespective of which spectrum you align with, it’s no secret that indirect costs are by far higher than direct costs. Moreover, unlike direct costs which are usually insured, indirect costs are usually paid for by the company’s checkbook and more likely to impact the company’s bottom line.
Here are some examples of the direct and indirect costs of injuries:
- Medical bills: This is the cost associated with providing medical treatment for an injured employee. This will depend on the type and severity of the injury; however, the average ranges from $1,000-$20,000.
- Injured employee’s lost-time wages: Workers’ compensation usually pays the wages of work time lost by the injured employee. The payment usually covers about 50%-60% of wages.
- Case management expenses: This covers the company’s cost associated with managing the case and is usually covered by workers’ compensation.
- Disability settlement: In some cases a disability settlement will be required for an injured worker. This is usually covered by workers’ compensation.
- Lost productivity: A workplace is bound to witness a loss in productivity after an injury. This usually stems from a halt in the activities of the injured worker. In some cases, co-workers may have to temporarily halt their tasks to provide aid to the injured person.
- Training costs: The company may have to train another person to perform the tasks of the injured employee if they must take time off due to their injury. Cost of training may be higher if a new hire or temporary employee is used to fill the role.
- Hiring costs: The company may have to hire another worker if the injured person is going to be away from work for an extended period.
- Incident investigation: It takes a team of people to thoroughly investigate an incident. This cost is associated with the wages of that team and the disruption of their regular duties.
- Legal fees: The severity of the injury may warrant a lawsuit. Legal expenses will be incurred irrespective of the outcome of the litigation.
- Property damage: The cost of repairing or replacing any damaged property or equipment resulting from the incident.
- Employee morale: A workplace injury could dampen employee morale and negatively impact employee engagement.
- Damaged reputation: The severity of the workplace incident may damage the company’s reputation in the sense that it may be viewed as an unsafe place to work. This may affect the company’s potential to attract or retain workers or customers.
There is no doubt that workplace injuries can be very costly and impact a company’s bottom line. To get a true picture of the cost of injuries, it is prudent that we look at both the direct and indirect costs. OSHA’s $afety Pays Program is a great platform that can be used to determine the estimated total cost of several types of occupational injuries. At Faith Technologies, we know that taking full consideration of these costs paints an even clearer picture of the importance of workplace safety, to prevent injuries from occurring.