The direct and indirect costs of workplace injuries

Here, we shall look deeper into the actual costs of workplace injuries. These expenses aren’t just defined by their direct costs; we also need to consider the auxiliary effects and how they may affect productivity, quality, morale, and, ultimately, the bottom line.

Types of costs

There are two sorts of costs linked with workplace injuries; Direct and Indirect costs.

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Direct costs

Direct costs are the most often evaluated and understood since they are clearly measurable through a worker’s compensation claim filed through an insurance company. According to NSC Workers Compensation Costs, these costs can vary greatly, but the average is roughly $40,000 per year.

Indirect costs

Indirect costs are less considered, but they are just as essential and, in general, more expensive. We’ve prepared a small list of examples here; however, costs vary according to the company and according to injury, so it’s always a good idea to do your research. Drawing a storyboard or flow chart describing what happens when an accident occurs is one of the best ways to assess this. When an accident happens or injury is sustained, do operations immediately stop? How many additional employees are impacted? What are the next steps following an injury? These rules and procedures are not only necessary for your organization, but they also aid in the assessment of the indirect costs of an injury.

Examples of indirect costs

• Fines and legal actions – these are the expense of fines, attorneys, and the associated administrative time.
• Lost production – they include reduced productivity, operations shut down, and hiring temp workers.
• Wages during work stoppage – this is the time needed to assess worker and equipment conditions, coworkers, and internal first responders
• Administrative time – HR, supervisors, and safety managers’ time to complete documentation and investigative reporting.
• Increase in premiums – higher workers’ compensation fees.

These costs are significant and difficult to quantify. Fortunately for us, many researchers have noticed this problem and developed ways of calculating indirect costs. According to one study, experts from the Liberty Mutual Research Institute for Safety, Harvard University, and the University of Wisconsin-Oshkosh discovered that for every dollar spent on direct costs, around $2.12 is spent on indirect costs. This study also discovered that every dollar invested in enhancing workplace safety returned $4.41 on average. That’s a return on investment we can get behind.

Another study that focused on the construction industry found a 4:1 or even 17:1 ratio between indirect and direct costs. These ratios will undoubtedly change depending on the size and magnitude of the incident, but in any case, the indirect costs will far outweigh the direct costs.

The bottom line

Based on those studies, a conservative calculation would be 2:1.

Indirect = Direct x 2

Based on the average of $40,000 that would bring the cost to:

Total Cost = $120,000 = $40,000 x $80,000

This number may not seem like a lot but if your company is operating at 10% profit, then you would essentially need $1.2 million in additional sales just to pay for one injury.

With all of this stated, it’s not only about the money; other aspects, such as the company’s health and morale, are at stake as well.

The best goal is to avoid these workplace injuries in the first place and to minimize the possibility of these incidents happening, you may consider CloudApper Safety to create and maintain safe operating procedures, identify concerns through safety meetings, inspect your equipment regularly, and much more. In the event of an injury, you may also use appropriate safety management software like CloudApper Safety to reduce indirect costs.