Direct and Indirect Costs: The Impact of Workplace Injuries
Picture this — An employee gets injured while transporting a pallet of product from one end of the warehouse to the other. Surrounding employees stop what they are doing to see what happened and some may even rush to their fellow employee's aid. Production halts for a few minutes until the injured employee gets the proper medical attention. After the accident, the employee will need additional medical treatment. Meanwhile, the employer is dealing with a loss in productivity due to a decrease in employee headcount. The impact of this accident can seem overwhelming at first, but it doesn’t need to be. Being able to identify the difference between direct and indirect costs will help companies prepare for future accidents and even help reduce the amount of workplace injuries.
Some of the costs for workplace injuries are clear, but the less obvious costs can have just as big of an impact. It is easy to see the Direct Costs of an injury which can be directly attributed to the injury; including medical treatment, medicine, therapy, and workers compensation. However, there are ongoing indirect costs to consider. Indirect Costs are unbudgeted expenses that a company has to endure unexpectedly. This includes training replacement employees, overtime, equipment loss, accident investigation, loss of productivity, and absenteeism. Indirect costs are almost always more expensive than direct costs because of the lasting impact they have on a company. It has been said that for every $1 of direct costs, there is an additional $4 in indirect costs. Accident investigation, productivity loss, and retraining take away valuable time and money away from an organization. It can often take several months to clear up a single workplace injury.
Reducing the costs of workplace injuries takes time; it isn’t something that will happen overnight. Companies need a strategic plan in place to help reduce injuries overtime and implement a strong safety culture throughout the organization. Some strategic safety plans include implementing safety programs, preparing preventative actions in case of accidents, and having employee accountability. A properly structured safety program will reduce the number of workplace injuries and all the hidden costs the employer would incur; leading to an increase in production and productivity while creating higher profits over time.