Every year workplace injuries, illnesses and deaths cost our nation $170 billion. That’s money that businesses can save and pain workers can avoid.
How can you save money while improving safety and health in your facility?
One study estimated that a good safety and health program can save $4 to $6 for every $1 invested. That’s because injuries and illnesses decline. Workers’ compensation costs go down. Medical costs decrease. There are other, less quantifiable benefits as well – reduced absenteeism, lower turnover, higher productivity and increased morale.
There are direct and indirect costs related to all accidents. Direct Costs are medical costs and indemnity payments. Indirect Costs refer to production time lost by the injured employee, fellow workers and supervisors; spoiled product, unhappy customers; cleanup time; schedule delays; training new employees; overhead costs; legal fees and an increase in insurance costs.
How to Estimate the Impact of Accidents on Your Profits and Sales
To calculate the direct cost, enter the following information:
- Total value of the insurance claim for an injury or illness $______________
(Medical costs and indemnity payments)
To calculate the indirect cost of this injury or illness, multiply the direct cost by a cost multiplier. The cost multiplier that you use will depend on the size of the direct cost.
|If your direct cost is:||Use this cost multiplier:|
|$0 – $2,999||4.5|
|$3,000 – $4,999||1.6|
|$5,000 – $9,999||1.2|
|$10,000 or more||1.1|
|•||Direct Cost||x||Cost Multiplier||=||Indirect Cost|
|•||Direct Cost||+||Indirect Cost||=||Total Cost|
To calculate an accident’s impact on your profitability, you will use your profit margin to determine the sales your company would need to generate to pay for this injury or illness.
- Divide your total profits by total sales to get your profit margin
- Divide the total cost of an injury or illness by your profit margin to determine how many sales your companies must generate to pay for the injury or illness. Keep the profit margin in decimal form (for example, .04)
Total Cost of
Injury or Illness
= Sales Required to Pay for Injury or Illness $ = $
Sales Required to Pay for an Accident
If your profit margin is:
1% 2% 3% 4% 5% $1,000 $100,000 $50,000 $33,000 $25,000 $20,000 $5,000 $500,000 $250,000 $167,000 $125,000 $100,000 $10,000 $1,000,000 $500,000 $333,000 $250,000 $200,000 $25,000 $2,500,000 $1,250,000 $833,000 $625,000 $500,000 $100,000 $10,000,000 $5,000,000 $3,333,000 $2,500,000 $2,000,000
$afety Pays $uccess $tories
Bethel Lutheran Home experienced a reduction in their Workers’ Compensation premium. In 1997 the premium was $186,000 and it was reduced to $128,000 for 1998. Their lost time days went from 2,642 in 1997 to 76 in 1998. Because of the increased safety awareness, they anticipate this trend will continue.
Case Corporation is also receiving benefits from their safety improvements. Their Experience Modification Ratio (EMR) and Workers’ Compensation premiums are changing. Their EMR for 1996 was a positive 23.9% which changed to a negative 25.1% in 1997. They received a 5% discount in their Workers’ compensation premiums for 1997.
Marion Plywood reduced their LWDII rate from 45.9 in FY1994 to 3.7 at the end of 1997. In 1994, injuries accounted for nearly 1500 lost workdays. In 1997 that number was reduced to 87. In 1997 the company received a Workers’ Compensation refund of $196,000.
“Safety Pays.” Safety Pays. Occupational Safety & Health Administration, n.d. Web. 30 Mar. 2016.