All workplace accidents have consequences. Regardless of the severity of an accident, when someone is injured on the job there are both direct and indirect costs that follow. While they have completely different effects, both types of costs can significantly impact the business’ operations, employees, bottom line and more. Thus, companies should view accidents from a holistic perspective by recognizing that injuries do not only impact the wounded person but also the entire company.
Being able to identify and differentiate between direct and indirect costs can help your company prepare for the inevitable effects of workplace accidents. While direct costs are often easier to spot and manage, it’s just as important to acknowledge and account for indirect costs. In fact, indirect costs account for about 71% of total injury costs – the majority of the incurred expenses.
With 7 million work-related injuries occurring each year, it’s imperative that your business can distinguish between direct and indirect costs so that you can actively prepare for the impacts of future accidents.
What are direct costs?
Direct costs are those that are easily calculated and can be directly attributed to an injury, such as workers’ compensation costs. According to the 2018 Liberty Mutual Workplace Safety Index, serious, non-fatal workplace injuries totaled nearly $60 billion in direct U.S. worker’s compensation costs. This translates into more than $1 billion dollars a week spent by businesses on injuries. Still, workers’ compensation costs are often only a fraction of the direct expenses that a company must pay.
Examples of direct costs:
What are indirect costs?
Indirect costs are any unbudgeted, uninsured expenses associated with a workplace accident. They are the costs that cannot be seen from the surface. Therefore, careful inspection is typically needed to successfully identify each of the indirect costs associated with a particular accident. Indirect costs tend to have long-term effects and can substantially impact a business’s bottom line. In fact, they are typically anywhere from 2 to 10 times as expensive as direct costs.
Examples of indirect costs:
Reduced employee morale
Recruiting, hiring and training replacement staff
OSHA fines and penalties
Since this type of cost is usually ineligible for insurance coverage, companies are often faced with a greater financial burden than that associated with direct costs.
How can companies reduce direct and indirect costs?
Although workplace accidents are inevitable, they can be minimized by implementing a strategic accident prevention plan, such as a safety footwear program. A strong safety program can help companies reduce the number of accidents and injuries sustained on the job; fewer accidents translate to fewer dollars spent on both direct and indirect costs. In fact, OSHA studies indicate that for every $1 invested in a safety program, companies can save $4 to $6. With an effective safety program, as companywide illnesses, injuries and fatalities decline, so do annual costs.
Whenever a workplace accident occurs, companies are faced with many different costs. Some of these costs are easily calculated while others are hidden costs that aren’t recognized until after an accident takes place. Regardless, companies should prepare for potential direct and indirect costs by establishing a strong safety program that will help reduce the number of workplace injuries and eliminate some of the visible and hidden costs the employer would incur because of an accident.