How much does safety really cost your organization?

If you operate a business in today’s marketplace, especially in a skilled trade like plumbing, construction, or electric work, it is impossible to ignore health and safety. Oftentimes, your experience mod, and even your insurance premiums are dependent on your safety through metrics like experience mod and the claim history of the organization. Governmental clap-back can be severe for companies who fail to create a safe work environment with OSHA investigations and fines that have the potential to cripple organizations for the foreseeable future. With so much riding on organizational safety culture, one might think that most businesses are focused on it and incidents and their costs are on the decline. But unfortunately that is not the case. Here’s the reality.

The lowlights

$170 billion — the total costs of work related injury and illness in the U.S. every year

7 seconds — a worker is injured on the jobsite every 7 seconds

104 million — lost production days in the U.S. every year

$1,685 — the cost per employee of productivity loss from work related health issues [1]

And the reality goes beyond these numbers. It really all comes back to your employees. When an organization’s safety culture doesn’t work, people get hurt. In February of 2021, a construction company’s repeated lack of safety protocols and accident prevention resulted in the death of 2 employees. A major software developer that failed to create a psychologically safe environment free of bullying and abuse. As a result, their culture was filled with sexual harassment, intimidation, and degradation of their team members (full breakdown here). These stories are just the tip of the iceberg. If an organization cares about its people, it needs to prioritize a culture that drives lasting safety. Full stop.

Here is where things get challenging. If you notice, we didn’t say “make safety your number one priority”. The first reason for this is that priorities change, whether because of internal or external pressure on the organization. The second reason is that a culture that values safety is the key to lasting change. Cultural change doesn’t happen overnight. Safety will have to be reimagined beyond posters and brief training sessions. At this point, if you are still thinking about your bottom line, that’s fine. After all, the growth and productivity of an organization is a huge part of providing long-term stability (aka safety) in the lives of your team members. So what is the real cost of safety?

Direct Costs

Direct costs are the expenses that you expect when a workplace incident occurs. Consequently they are likely covered by workers’ compensation insurance. Here are some common direct costs:

• Medical payments: eligible medical expenses to treat the injuries an employee sustained
• Wage benefits: paying for employees who are unable to return to work at a full capacity
• Legal fees: costs associated with workers’ comp claims, settlement costs, and potential civil liability costs
• Investigation costs: the costs to investigate potential fraud.
• Rehabilitation costs: expenses connected to rehabilitating injured employees through training, counseling or other therapy.

Indirect Costs

These costs are much harder to prepare for as they vary substantially based on how serious an incident may be. They are also not usually covered by your worker’s compensation insurance, and could have a substantial negative impact on an organization. Here are some examples:

• OSHA fines: inspections due to a workplace accident could reveal safety issues, and repeat offenders could face significantly increased inspection frequency.
• Wages and hours: the expenses required to perform injured team members duties (from hiring temporary workers to giving overtime to current team members)
• Production delays: employee absence has the potential to extend your delivery past deadlines and negatively impact business contracts.
• Training expenses: costs to instruct replacements to cover for injured team members. If the absence is permanent this can include hiring costs.
• Damaged reputation: the costs to your goodwill in procuring and maintaining business relationships

The challenging part about indirect costs is that they are hard to predict and estimate. An incident could have minimal indirect cost impact, while a similar accident six months later could bring with it substantial consequences, investigations, and reputational damage. The key to mitigating indirects costs in your insurance is the proactive prevention of accidents through, you guessed it, a culture that drives long term safety. Generally OSHA data estimates the indirect costs for incidents at 1.1 to 1.2 times the direct costs of an incident, depending on the type of accident. [2]

Calculate Your Costs

Safety is impacting your bottom line. To get an idea of the true cost to your organization, you can utilize the calculator on our website linked below. There are two approaches you can take. One is to select your most common incident type and add the average number of incidents you incur per year to get an estimate of both your direct and indirect costs. This approach will be the most accurate as it utilizes the average costs reported to OSHA for specific incident categories.

The second approach is to enter your total worker’s compensation costs for the year. This will also give you an estimate of your direct and indirect costs, although it will be less detailed than the type specific estimates.

Calculator: www.ledgestone.com/blog/the-cost-of-safety

Hopefully these numbers are eye-opening. Making safety a cultural value is a challenge, but one worth taking. If you have any questions, feel free to head to www.ledgestone.com/contact to touch base or follow this link to read more about how safety and culture can impact your organization.

References:

1. Tomlinson, Z. (2021, March 8). Importance of workplace safety in 2020: Here’s what the stats show — besafe — school and workplace safety. BeSafe. Retrieved January 27, 2022, from https://www.besafe.net/news/importance-of-workplace-safety-in-2020/
2. Safety Costs Estimation. Estimated Costs of Occupational Injuries and Illnesses and Estimated Impact on a Company’s Profitability Worksheet — Text Version | Occupational Safety and Health Administration. (2022). Retrieved January 27, 2022, from https://www.osha.gov/safetypays/estimator-text