Cost of Workplace Injuries: Direct Cost vs. Indirect Cost

April 30, 2017 JAlfonso No comments exist

Direct costs:

Tony Rosario worked in construction. He was on a roof wearing his fall protection. As the morning began to heat up, he crossed over to the other side of the roof where he had kept his water bottle. On the other side of the roof, his safety line had a lot of slack; he had not made the adjustments. While taking a big refreshing gulp, Mr. Rosario slipped off the roof two stories and broke several bones as well as a concussion on his “cabezita” (head) which obviously hurt very much. He was immediately rushed to Emergency which was just the beginning of his journey to recovery.

 

Due to his injuries, workers’ comp. insurance covered all his medical expenses, including hospital cost, doctor visits, testing such as X rays, and MRIs, physical therapy, transportation to his medical appointments, an interpreter for all these appointments, and the cost of a case manager. The cost of his covered medical compensation was $100,000 when all was said and done. It actually could have been worse, but he recovered faster than anyone expected.

 

All of this is what you call direct cost, which is covered by insurance. By the way, insurance will cover it but the employer will eventually pay for it all plus interest through higher insurance premiums. However, it doesn’t end there.

 

Indirect costs:

We are just getting started. Most experts conservatively calculate that the indirect cost can easily be calculated at four times the direct cost. Depending on the industry and circumstances, some have calculated indirect cost at up to 10 times the direct cost!  What does that mean?

 

If Mr. Rosario’s direct cost came out to $100,000, then four times that is $400,000! When you add that up, you are now looking at one injury costing a company a half million dollars. Not to mention that we are talking about a person’s life that has no price tag.

 

What are some of these indirect cost? 

How about property or building damage, tool, product and materials damaged? The heavy cost of delays in production due to interruptions. Then there are a bunch of other financial burdens that are difficult to measure. For instance, typically time must be taken to do an investigation, followed by a ton of paperwork. There is substantial cost and time invested in the hiring process for a replacement, not to mention the training involved. Speaking of training, every employee has a learning curve before they become efficient and productive. In the meantime, other employees are covering the job and guess what, this means paying overtime! Supervisors are working extra hard after an accident to correct issues and make sure another doesn’t happen. All that extra time isn’t free. Remember those reports? There are workers’ comp. forms to fill out and OSHA® logs, all costing money in clerical time. When a big accident happens, the work day is shot and there might be a slow down for several days before everything goes back to normal. That is called down time and it can be expensive. You can bet that the injured worker isn’t satisfied with compensation he getting from worker’s comp. After all, it’s only two-thirds of his salary, and just because he’s injured doesn’t mean all his living expenses will also be reduced by one-third.  There are always some who will go and hire a good lawyer to start a lawsuit against the company and insurance carrier. Now the insurance company obtains quality legal representation for itself and its insured, the employer. More money to dish out, win, lose or settle. In the meantime, morale is down and employees are murmuring. Something has to be done to boost morale. Whatever you do, it will cost money. Finally, if a company develops a negative public image and are perceived as unsafe and uncompliant, they will most likely miss out on important contracts, which can represent a massive loss in income. (See what happened to United with the doctor?) Therefore, most companies will invest in maintaining and improving their public image.

 

Whoa! After all that, can you see why hidden cost is calculated to be at least four times the direct cost? Pennies on the dollar friends! Studies show that the investment you make in an effective safety program will ultimately save a company a lot of headaches and money!  Jeff with Alfonso Interpreting is a Spanish/English bilingual safety trainer who understands the culture. We place special emphasis on the Hispanic population because it statically has a higher percentage of deaths and injuries. Some of the reasons why are that they are typically placed in the most dangerous jobs with the least amount of training. We are here to save lives, and at the same time, save you money.

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