Course 700 - Introduction to Safety Management

Safety guides and audits to make your job as a safety professional easier

Direct and Indirect Costs of Accidents

Direct Costs are just the tip of the iceberg.

Direct, or insured costs for accidents are usually considered those costs covered by workers compensation insurance and other minor medical costs for the accident. The company pays insurance to cover these costs. The average direct costs depend on the nature of the injury or illness, but usually range from $1,000 to $20,000. A good round figure to use when estimating all lost time workplace injuries is $10,000. Of course, the more accidents, the higher the insurance.

Indirect costs....what they can do to your company.

Indirect costs are all the "uninsured" additional costs associated with an accident. What is important to realize is that indirect costs are usually much greater than direct costs: From 2-10 times as expensive. Another important point is that, unlike direct costs, indirect costs are uninsured...they come right out of the corporate pocketbook. These are the costs that can drive a company into the red.

The NSC lists examples of indirect or uninsured costs:

  • Lost production time.
  • Productive time lost by an injured employee.
  • Productive time lost by employees and supervisors helping the accident victim.
  • Cleanup and startup of operations interrupted by an accident.
  • Time to hire or train a worker to replace the injured worker until they return to work.
  • Property damage. Time and cost for repair or replacement of damaged equipment, materials or other property.
  • Cost of continuing all or part of the employee's wages, plus compensation.
  • Reduced morale among your employees, and perhaps lower efficiency.
  • Cost of completing paperwork generated by the accident.
  • OSHA penalties.

The unknown costs of an accident

You will hear or read a lot about direct (insured) and indirect (uninsured) costs associated with workplace accidents. But, there are other costs that are difficult or impossible to measure that may have a "fatal" impact on the success of the company. We're talking about the unknown or unknowable costs of workplace accidents: morale and reputation.

When a serious accident or fatality occurs in the workplace, a very basic, negative message may be sent to employees: "management does not care." The message may be subtle, but it may be there. In many instances employee morale suffers, and this usually negatively impacts the quantity and quality of the work they perform. Employee turnover usually increases after a serious accident, and always after a fatality.

Another factor that might affect the long-term success of the company is that of reputation. What do employees and the members of the local community think about a company that does not keep its workplace safe and healthful? What message about the company does the family of accident or fatality victim send to their relatives, friends, and neighbors? Will a company with a poor accident record maintain competitive advantage when hiring the best qualified people? The reputation of a company is a reflection of its public image and must be considered as an important factor influencing its success.