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The Hidden Costs of Workers’ Comp Claims

The indirect effects of an accident
are four to ten times more costly
than the direct effects.



Indirect Costs
  • Employee benefits & wage continuation
  • Investigation
  • Supervisory time
  • Claims handling time
  • Reports and paperwork
  • Equipment damage and third-party liability
  • Rescheduling staff
  • Overtime
  • Retraining
  • Reduced productivity and morale
  • Increased workers’ compensation costs
  • Hiring and selection costs
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By Byron Fry

Employers have a responsibility to supply their workers with compensation in the event of an accident. Even the best companies, who do everything they can to provide a safe environment, will still have an occasional accident. But what they may not realize is that the indirect or “hidden” cost of a workers’ compensation claim can be four to ten times the direct cost.

The direct costs are medical, hospital, rehabilitation expenses, workers’ compensation payments and higher insurance premiums or in some cases a loss of insurability. And, while most believe that companies set aside money to pay for these costs, most employers will tell you that the money almost always comes from profits. The direct costs are just the tip of the iceberg. The less obvious indirect costs - usually uninsured - come from disruptions to normal work procedures and drops in production, which have direct effects on profits. This means a company may be forced to delay new equipment and facilities.

Other hidden costs include missed delivery dates because of non-productivity and disruptions in workflow, and the damage control cost of getting production back to normal.

The Average Indirect Costs

An OSHA study claims that the indirect cost of a workers’ compensation claim can be 4.5 times the direct cost. They found that an employee with a medical claim of $2,000 would equal $9,000 in indirect costs. Automobile accidents and general liability cost even more because of different multipliers. Other studies done by independent groups have found similar results. The US Department of Labor provides a Cost of Accidents Calculator on their Web site. To see an estimated annual accident cost go to The Cost of Accident Calculator.

Workers’ compensation insurance policies always have exclusions. These exclusions vary from policy to policy, and it is important that employers read the fine print. Some “packaged policies” may not include coverage for workers’ injuries. It is very important that employers evaluate and audit their insurance policies to keep from unexpected workers’ compensation claims costs.



The OSHA Hit List

OSHA has had a “business-friendly” reputation in the last eight years. But, new statistics on the agency’s citations and penalties for 2008 show the opposite. And with the new pro-labor era administration, OSHA is set to issue even more fines.

Top 10 Frequently cited standards in fiscal year 2008 (Oct. 2007 through Sept. 2008):
  1. 1. Scaffolding, general requirements, construction
  2. 2. Fall protection, construction
  3. 3. Hazard communication standard, general industry
  4. 4. Control of hazardous energy (lockout/tagout), general industry
  5. 5. Respiratory protection, general industry
  6. 6. Electrical, wiring methods, components and equipment, general industry
  7. 7. Powered industrial trucks, general industry
  8. 8. Ladders, construction
  9. 9. Machines, general requirements, general industry
  10. 10. Electrical systems design, general requirements, general industry


Top 10 Penalties for the fiscal year of 2008 (Oct. 2007 through Sept. 2008):
  1. 1. Fall protection, construction
  2. 2. Scaffolding, general requirements, construction
  3. 3. Electrical, hazardous (classified) locations
  4. 4. Control of hazardous energy (lockout/tagout), general industry
  5. 5. Excavations, requirements for protective systems, construction
  6. 6. Machines, general requirements, general industry
  7. 7. General duty clause
  8. 8. Powered industrial trucks, general industry
  9. 9. Walking-working surfaces, general requirements
  10. 10. Process safety management of highly hazardous chemicals


Top 5 Ways to stay off the Hit List
  1. 1. Audit your company’s injury and accident rates
  2. 2. Look at the OSHA citation trends for your industry
  3. 3. Compare your rates with your competitor’s
  4. 4. Look at the types of OSHA-related news coverage and compare your company’s practices
  5. 5. Monitor new OSHA standards and policies
 
Spending money to save money

Prevention can be a company’s best asset when it comes to injuries in the workplace. And, while the cost of a safety committee may seem expensive, it is significantly less than a claim. Let’s look at the cost of a six to seven member committee. If these employees meet for two to three hours, at an average salary of $20 per hour, each meeting will cost $420. The cost monthly would be $5,040. The cost of committee members to attend workshops on effectively performing their committee duties can also be costly, but would be worth it to prevent injuries. As there are hidden costs in an injury, there are hidden savings in prevention.

Hidden Savings

To see an estimated annual accident cost go to:

Cost of Accident Calculator

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