Question

What are some of the indirect costs of workplace accidents?

Answer
By Michael Smeaton | Last updated: January 16, 2024
Presented by AD Safety Network

OSHA considers the indirect costs of accidents to be all the uninsured additional costs associated with an accident.

While these may be less obvious than the direct expenses a company has to pay out following an accident, they tend to be much greater.

What Are the Direct Costs of Workplace Accidents?

Direct costs include:

  • Worker’s compensation payments
  • Medical expenses
  • Legal services

These are the costs covered by commercial insurance policies, and they can be quite high. Liberty Mutual’s 2018 Workplace Safety Index estimates 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 the 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.

It’s far more difficult to tally up the indirect costs associated with an accident. A conservative estimate would put it at three dollars for every dollar of direct costs. Other sources estimate that they are 2 to 10 times as expensive as direct costs.

Types of Indirect Costs

Although they can be more expensive than direct costs, the sources of indirect costs are less obvious. Because of this, they may not be fully accounted for when calculating the toll an accident takes on a company’s finances.

To give you a better sense of how accidents really affect a company’s bottom line, here are the main types of indirect costs that result from them.

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, especially for a month or more, it might be necessary to train a temporary replacement. This is itself an additional cost, but so is taking staff away from their usual duties to conduct the training or help the temporary hire

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adjust to the job.

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

Accident Investigation

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

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. And serious or fatal injuries can shut down operations completely until formal investigations are complete.

Productivity loss can also come from the investigation process, which results in fewer employees on the floor. But it can also result from overtime, fatigue, and lowered morale.

Implementing Corrective Measures

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

These may include upgraded equipment, better machine guards, new PPE, or hiring additional personnel. 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.

PPE that has been involved in an incident may also need 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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Written by Michael Smeaton | President

Michael Smeaton

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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