Transportation and warehousing companies that are serious about reducing costs need to take a good look at the effectiveness of their workplace safety programs.
According to a 2022 report from Liberty Mutual, non-fatal workplace injuries where employees lose more than five days of work cost these industries nearly $4.67 billion annually in direct costs such as workers’ compensation payments, employee’s medical expenses and legal fees.
But that’s only part of the story.
The indirect cost of such incidents, although more difficult to quantify, are usually even higher. “When you start to think through indirect costs for an organization when employees are injured, it breaks down into three really big buckets: the people, the operation and then the overall company,” said Danica Fairfax, Liberty Mutual’s product director, emerging risk, risk control services.
On the people side, companies must pay to train someone to do the injured worker’s job, whether that’s co-workers (which could mean overtime expenses), or a long-term temporary worker. A serious injury will also impact employee morale; they may be less productive because they worry about their coworker and about suffering a similar injury themselves.
On the operational side, the accident could result in expenses and lost productivity related to equipment loss or damage, or in damage to stored goods or other property. The company may incur OSHA fines, and their insurance rates might rise.
The negative fallout from a worker injury could also injure the company’s reputation, which could translate into lost business, reduced worker retention and fewer potential employees looking for jobs with them.
Calculating indirect costs
The best way to reduce direct and indirect costs of workplace injuries is to prevent the incidents. That may require additional safety training, upgrades to workers’ personal injury protection equipment and/or automation of activities, like lifting, which often cause injuries. Since these investments can add costs, safety and risk managers have to present a strong business case for them.
OSHA’s online Safety Pays Tool provides an estimate of the direct and indirect costs of occupational injuries and their impact on a company’s profitability. A single incident involving a fracture, for example, would set a company back $54,856, which would be covered in part by the employer’s workers’ compensation policy. However, the indirect costs, which OSHA estimates at around $60,341, would be solely the employer’s responsibility. At a 3% profit margin, a company would have to make an additional $2,011,360 in sales to cover the indirect costs, and $3,839,900 to cover both direct and indirect costs.
Rick Barker, principal solutions strategist, ergonomics at VelocityEHS, a provider of environmental, health and safety (EHS) software, said the OSHA Safety Pays Tool is a good place to start, because it provides a conservative estimate of indirect costs. Safety managers that use OSHA’s multiplier to determine indirect costs, rather than a higher (but perhaps more accurate) multiplier are less likely to get a skeptical response from senior leadership.
A safety manager or risk manager who wants to get accurate figures on the actual indirect costs within their own organization needs to collaborate with a number of other departments, since each may provide a piece of relevant data. For example, the HR department could provide the cost of training an injured employee’s replacement, while the operations department could supply information about the expenses for machine downtime or repair. “If there is no collaboration, or if they’re just not having these discussions, there might be that potential gap where you lose that true representation of the cost of the individual accident or injury,” said Fairfax.
Often overlooked are the costs associated with non-reportable accidents. “If you look at your OSHA numbers, you might say we had to complete 20 reporting forms last year. But if you also looked at your first aid numbers, you might see that you actually had to complete 220 reports,” said Barker. “If it took four total hours of time to complete all the paperwork and all the investigation for each incident, that’s almost 900 hours of time, and that’s something you can translate to ‘900 hours cost us this much.’”
The goal should be to provide safety transparency to leadership. “Being able to show your work when asked increases your credibility,” Barker said.
When safety managers are making their presentations to C-suite executives about costs of accidents and the need for better safety programs, they may also want to point out what their competitors are doing in this area. An organization that can reduce workplace injuries gains a competitive advantage because they are keeping a valuable employee at work and saving money on both direct and indirect costs.