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Question

What are some of the indirect costs of workplace accidents?

Answer
By Michael Smeaton | Last updated: October 31, 2021
Presented by AD Safety Network

According to OSHA, indirect costs are all the uninsured additional costs associated with an accident. While they may be less obvious than the direct costs associated with accidents, they tend to be much greater.

What Are the Direct Costs of Workplace Accidents?

Direct costs include workers' compensation payments, medical expenses, legal services, and other expenses that arise directly as a result of a workplace accident. These costs are the ones covered by commercial insurance policies. Liberty Mutual's 2018 Workplace Safety Index estimated that employers paid more than $1 billion per week in 2015 for direct workers’ compensation costs for disabling, nonfatal workplace injuries.

What Are the Indirect Costs of Accidents?

Indirect costs are additional or hidden costs associated with an accident. These are not covered by insurance, are typically unexpected, and rarely budgeted. Because of this, they can have devastating and lasting impacts on companies that bear the brunt of them.

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A conservative estimate of losses associated with accidents finds that for every dollar incurred in direct costs, there are three dollars worth of indirect costs. Other sources estimate that indirect costs are 2 to 10 times as expensive as direct costs.

Types of Indirect Costs

Training and Onboarding Replacement Employees

According to the Bureau of Labor Statistics, more than a quarter of cases related to injury and illness result in 31 or more days away from work.

When an injury keeps a worker off the job, it might be necessary to train a temporary replacement. This incurs an additional cost as well as often taking staff away from their usual duties to conduct the training.

Even when the other employees manage to absorb the injured worker's job responsibilities, the company may still incur a cost due to lowered productivity.

Accident Investigation

Accident investigations are essential, but they can be time-consuming and temporarily take people away from their regular job dutiies.

A thorough investigation, moreover, might require bringing in an outside agency, which is itself an additional cost.

Lost Productivity

Even minor injuries can take a toll on the emotional state and productivity of other employees. But serious injuries or fatalities can shut down operations completely until formal investigations are complete.

The productivity loss can come from the investigation process, which results in fewer employees on the floor. But it can also reduce the quality of the workers' productivity due to overtime, fatigue, and lowered morale.

Implementing Corrective Measures

Incident investigations often result in a set of recommendations to make the workplace or the work processes safter.

These may include upgraded equipment, better machine guards, new PPE, or even hiring additional personel. In those cases, responding to the accident involves costs that can themselves be quite substantial.

Repairing Damaged Equipment and Property

Post-accident cleanup can require the use of personnel time as well as disposable equipment. Additionally, any property that has been damaged from the accident will need to be replaced or repaired. Depending on its nature, the accident may also damage or spoil stock or products.

Additionally, PPE that has been involved in an incident sometimes needs to be discarded and replaced.

Conclusion

OSHA estimates that businesses with established health and safety management systems can reduce their injury and illness costs by 20 to 40 percent. However, it is not just about saving money. Having an effective system in place means workers are safer – and that is invaluable.

Companies need structured and strategic safety programs that include strong safety culture, preparedness for anticipatory accidents and employee accountability to reduce the number of workplace incidents and associated hidden costs.

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Presented By

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Written by Michael Smeaton | President

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Michael “Mike” Smeaton serves as President of the SafetyNetwork. He has over 39 years of experience in the industrial safety marketplace. Prior to becoming SafetyNetwork President, Mike worked in American Optical’s Safety Division as a Regional Sales Manager until he acquired a portion of Quad City Safety, Inc. In 1989 Mike purchased the remaining portion of Quad City Safety and, over the next decade, turned it into one of the leading independent safety distributors in the United States.

Mike attended both The University of Iowa and St. Ambrose University. He has two children, Mike, Jr. and Melissa. Mike is married to Deborah Smeaton.

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