How Much Does an Injury Actually Cost Your Business?

posted on: Monday October 15, 2012

Let’s be honest. The top reason that employers go the extra mile for employee safety is money. Yes, everyone cares about the well-being of their employees, but the direct and indirect cost of worker’s compensation is measured more easily than risk of injury. Fortunately, safety and saving money go hand-in-hand. Yet people can’t calculate cost to their own companies when they see numbers like $26.3 billion (annual direct cost of back pain care in the U.S.) or 80% (percentage of the U.S. population to need care for back pain in their lives.) A person needs to see numbers that directly affect him and his company. The next few articles will break down the most frequent injuries sustained on the job, the direct and indirect costs of these injuries, average worker’s compensation payout, and a bottom line: how much you have to make to recover from one injury of that nature.

The Liberty Mutual Research Institute for Safety publishes a Workplace Safety index that defines the most disabling workplace injuries and the cost associated with them. The top-ranking (by a lot) category of injury was overexertion. These are injuries from excessive pushing, pulling, lifting, carrying, throwing, and holding. According to the research, costs from these injuries account for over a quarter the overall national burden. Also ranking in the top five disabling injury categories is bodily reaction. This includes injuries from bending, climbing, reaching, standing, sitting, slipping, or tripping without falling. What separates these two categories from the other 3 in the top 5 (fall on the same level, fall to a lower level, and struck by an object) is that the risks come from the job tasks themselves and not the structure of the environment. Overexertion and bodily reaction injuries are likely to be musculoskeletal disorders resulting from the physical nature of the job. These often develop over time, vary in severity, and therefore also require varying kinds of treatment. They also can be the most difficult to anticipate; companies need to invest in equipment that replaces pushing, pulling, bending, etc., to avoid these kinds of injuries.

When looking at the cost of injuries, the direct costs are easier to calculate than the indirect once you know what treatment is required. The direct costs (that are typically covered by worker’s comp) can include medical bills (which may include surgery), manual therapies (physical therapy, massage, chiropractics), splinting aids (braces, slings), lost wages, and possibly an impairment award. If the injury results in permanent disability, then in addition to these costs, a settlement will also include lost wages for the rest of the worker’s life. In some cases, legal fees are added to the bill. Even an injury that neither requires surgery nor permanently disables the employee will cost thousands of dollars.

Calculating indirect costs isn’t always so cut and dry. When an employee is injured, several things need to happen at the work site. Depending on the injury, replacement employees may need to be trained, accident investigation may be in order, corrective measures may be appropriate, and repairs may need to be made. Extra administrative hours may be spent completing paperwork on the incident. Additionally, the business has lost productivity and costs related to absenteeism and lowered employee morale.  Insurance premiums may be affected, and in some cases, media attention negatively impacts the success of a business.

Fortunately, there is a formula to help us anticipate the total cost of an injury and how much you need to make to offset it. In fact, for those who are not fans of math, there is a webpage that calculates it automatically. We will use the formula on the SafetyXChange website to explain how the numbers are calculated. The direct cost is the complete value of the insurance claim. That part is easy. To figure indirect cost, the direct cost is multiplied by either 4.5, 1.6, 1.2, or 1.1 depending on the direct cost. (As the cost goes up, the multiplier gets smaller.) For example, if the direct cost is $2,000, it is multiplied by 4.5 to find the indirect cost ($9,000). Add the direct and indirect costs together for a total cost ($2,000 + $9,000 = $11,000). The next step is figuring profit margin. Simply divide the total profits by the total sales. For example, if after the cost of goods, one profits $2,000 on $10,000 in sales, his profit margin is .2 or 20%.  Finally, divide the total cost by the profit margin. In this example, that would be 11,000/.2. The resulting revenue required to offset the loss in this example is $55,000. Again, a $2,000 injury would require a company whose profit margin is 20% to generate $55,000 in revenue to make up for it. Ouch.

When the actual cost of injury is broken down, the need to prevent it becomes even more urgent. In the next article, we will look closely at overexertion injuries and the most common type of injury in that category.

Employers looking to prevent overexertion injuries are in luck. There are redesigns and equipment options available to make the workplace safer. One option that replaces a lot of the most dangerous work is a battery-powered Load Mover. This equipment is durable, powerful, and lasts all day on one charge. It is completely self-propelled, so employees don’t need to push or pull. Additionally, they maneuver easily and can move 1,000 to 50,000 pounds. Load Movers can eliminate pushing, pulling, lifting, carrying, and reaching tasks that other motorized and/or wheeled carts cannot. For more information, please visit http://www.loadmoverinc.com/.