The True Cost of Workplace Injuries: Calculating the Impact

According to the 2016 Liberty Mutual Workplace Safety Index, the most disabling, nonfatal workplace injuries amounted to nearly $62 billion in direct workers compensation costs, last year. This is a very large number and represents a huge cost to employers, but when you take into account indirect costs, that number dramatically increases to $250 billion each year.

So how are direct and indirect costs defined and how can you calculate the true cost of an injury and its effect on your organization?

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Direct Costs

Direct Costs include the claim cost, administrative cost, excess premium and additional fees. These costs can be broken down into the following categories:


  • Hospital 
  • Physicians
  • Pharmacy
  • Physical Therapy or at home nurse

Indemnity Payments

  • Disability compensation
  • Dependent benefits or death benefits
  • Settlements
  • Legal expenses including investigations

Program or Administrative Costs

  • Increase in premium
  • Claims administration expenses
  • Taxes assessments or other additional expenses

Indirect Costs

Indirect Costs are the additional effects injuries can have on your organization both financially and emotionally and include:

  • Loss of productivity or service standards
  • Additional supervision time and administrative costs
  • Labor and overtime costs
  • OSHA fines
  • Building or vehicle damage
  • Equipment damage
  • Recruiting, hiring and training replacement
  • Loss of business or goodwill 
  • Emotional toll on other employees and increased risk for additional injuries or further claims

To calculate how the total costs (direct + indirect) of an injury affect profitability � calculate how much money in sales your company must generate to make up for these losses.

First calculate your company's profit margin by dividing its total profits by total sales, and divide the total cost of an injury or illness by your company's profit margin. 

Using this formula an injury with direct and indirect costs of $79,613 would require a company with a profit margin of 5 percent to generate $1,592,260 of sales to make up for the losses.  

As you can see there are more than just the direct costs to consider when evaluating the true cost of an injury. Injuries affect multiple parts of the organization and a focus on safety should be shared across the board. Procurement, Safety, Finance, Legal and Operations must work together to develop a comprehensive strategy to reduce injuries in the workplace, limiting the number of claims and saving significant time and money.

When building this strategy you need more than a safety supplier, you need a safety partner. Someone who can provide a comprehensive program that combines the proper safety equipment, training, services, technology and safety expertise to reduce your injury rates. 

To learn more about SafetyCare, Arbill's revolutionary approach to injury prevention,join us on Friday, October 6th, for a free educational event at our headquarters.

Have a Safe Day!