Reducing the Indirect Costs of Workplace Injuries

Workplace injuries and illnesses can be costly for employers. Some of those safety costs are clear, but less obvious costs can add up, too.

“Workplace accidents impact employees’ physical, emotional and financial well-being,” Debbie Michel, general manager of Liberty Mutual’s National Insurance Casualty operation, told EHS Today. “They also financially burden employers, who pay all of the medical costs related to a workplace injury, together with some portion of an injured employee’s pay. Besides these direct costs, workplace injuries also produce such indirect costs for employers as hiring temporary employees, lost productivity, quality disruptions, and damage to a company’s employee engagement and external reputation.”

According to the Occupational Safety and Health Administration, employers pay almost $1 billion a week in direct workers’ compensation costs. But employers also face indirect costs, which are typically not covered by insurance.

What Are the Direct Costs of Workplace Injuries?

OSHA says examples of direct costs of workplace injuries and accidents include:

• Compensation payments
• Medical expenses
• Costs for legal services

“The direct costs of an injury are the easiest to see and understand. These costs include emergency room and doctor visits, medical bills, medicines, and rehabilitation,” Ray Gagne, EET, CFE, NADEP, writes in a study. “But direct costs are just the tip of the iceberg.”

According to Liberty Mutual Insurance’s Workplace Safety Index, which examines injuries that cause workers to miss six or more days of work, serious workplace injuries cost businesses more than $58 billion in direct costs in 2018. Overexertion–with injuries related to activities such as pushing, pulling, lifting, carrying or throwing–was the most costly, at $13.7 billion.

Other expensive injuries included falls at the same level ($11.2 billion), falls to a lower level ($5.9 billion), struck by object or equipment ($5.3 billion), injuries caused by other exertions such as bending or twisting ($4.2 billion), slips or trips ($2.3 billion), caught in or compressed by equipment ($2.1 billion), and repetitive motion ($1.5 billion).

 Want some help figuring out safety costs? Help yourself with our interactive workplace injury calculator.

What Are the Indirect Costs of Workplace Injuries?

“Indirect costs can be best described as all unbudgeted costs associated with an injury in order to get the employee back to pre-injury status,” says Gagne.

According to OSHA, indirect costs of workplace injuries and illnesses include:

• Training replacement employees
• Accident investigation
• Implementation of corrective measures
• Lost productivity
• Repairs of damaged equipment and property
• Costs associated with lower employee morale and absenteeism

Ron Pitcher, president of Pitcher Insurance, in an article in MetalForming Magazine, says that indirect costs can be difficult to calculate accurately.

“Uninsured costs rarely are accounted for by most business owners and financial managers, because they are not easily identifiable,” Pitcher writes. “It’s difficult to accurately measure the financial impact and obtain reliable information to allow business owners and financial managers to appropriately deploy scarce resources and minimize costs. However, designing safety and health practices around the credible quantification of your organization’s total cost of worker injuries is effective to reduce short- and long-term costs.”

The overall financial impact of these indirect costs is subsequently also up for debate. Ratios that use direct costs to calculate indirect costs vary from 1:1 to 1:3 to 1:10 and higher (see sidebar).

How do you calculate the indirect costs of injuries and illnesses?