How Safety Impacts Your Bottom Line

by Greg Summerhays

The Benefits of Safety:

Workplace safety efforts help to decrease costs and keep employees working. When a workplace injury occurs, how much does that injury truly cost an organization? The financial answer is not always clear, but the cost is often underestimated.

Typically, actual injury costs are between 5 to 50 times the size of the obvious direct costs of medical expenses and salary for the injured worker. An organization may also be surprised to analyze the revenue required to recover the costs associated with a workplace injury.

According to the Occupational Safety and Health Administration, costs associated with occupational injuries and illness can comprise as much as 5% of a company's total costs. These costs include direct and indirect costs.

Direct Costs

Direct costs of an injury include medical costs, lost wages and higher insurance premiums. Insurance costs increase based on the rise in claims frequency and severity, which will directly influence an organization's experience modifier, or e-mod. An organization’s e-mod is calculated by the National Council on Compensation Insurance and is based on your payroll and claims costs history compared to other similar organizations in the company’s industry. If the organization’s claims frequency and severity is above the average, the company’s e-mod will be above a 1.00. If claims frequency and severity is below average, the company’s e-mod will be less than 1.00. The increased costs due to an increase in claims history is illustrated by the following example:

Indirect Costs

Similar to the invisible portion of an iceberg, there are a number of indirect costs associated with accidents that are not as easily seen. These indirect costs have been estimated to be from 5 to 50 times the size of the direct costs. Indirect costs include money spent on things such as repairing damaged equipment, lost time to fill out accident reports, time/money spent on hiring and training replacement personnel and lost productivity/quality because less experienced employees replace key injured employees.

Revenue Required to Recover Costs

Few employers understand the additional sales and productivity efforts required to make up for lost profits associated with accidents. The two following examples show how a company can calculate the revenues needed to maintain profit margins and cover the cost of accidents.

To calculate how much a company would have to make up in sales to pay for a claim, complete the formula below.

How to Lower Costs

An effective safety program can help prevent injuries, reduce costs and make a substantial contribution to a company’s bottom line. The most effective safety program is one that is fully integrated into the way the company conducts its business. Companies should focus safety programs on the systems and processes that have the greatest potential to cause injury.

Greg Summerhays is Director of Public Relations at Workers Compensation Fund. WCF offers ongoing safety training, and UMA members are eligible for a 5% premium discount through a partnership with WCF. Visit www.wcfgroup.com for more information.