702 Incident and Accident Investigation

Estimating Direct and Indirect Costs

Workplace incidents can create both direct and indirect costs. Estimating these costs can help decision-makers understand the financial benefits of preventing similar incidents.

OSHA's Safety Pays Program provides tools employers can use to estimate how occupational injuries and illnesses may affect profitability. The Individual Injury Estimator estimates direct costs, indirect costs, total costs, and the additional sales that may be needed to cover those costs. These figures are estimates and should not be treated as the actual costs of a particular incident.

Direct Costs

Direct costs generally include workers' compensation and related claim costs. Depending on the employer's insurance arrangements, some direct costs may be covered by insurance. Direct-insured costs include:

• Injured worker's wages during injury
• Workers' compensation payments
• Medical treatment expenses
• Costs for insured legal services

Indirect Costs

Indirect costs are additional costs associated with an incident that may not be covered by insurance. Uninsured-indirect costs include:

• Wages paid to injured workers for absences not covered by workers' compensation
• Cost of wages related to time lost through work stoppage associated with the worker injury
• Overtime costs necessitated by the injury
• Administrative time spent by supervisors, safety personnel, and clerical workers after an injury
• Training/retraining costs for a replacement worker

• Damaged equipment and materials clean-up, repair, and replacement
• Costs of incident investigations
• Possible OSHA fines and any associated legal action
• Employer-paid medical, third-party liability, and legal costs
• Loss of reputation and goodwill from bad publicity

Estimating the Financial Impact

The cost of an injury varies depending on the type and severity of the injury, insurance arrangements, workplace circumstances, and other factors. OSHA's Safety Pays tools use estimated direct and indirect costs to illustrate how injuries and illnesses can affect an organization's profitability.

For example, at a 3% profit margin, every $1 in injury costs requires about $33 in additional sales to recover the lost profit. OSHA's Safety Pays estimator uses 3% as its default profit margin when the user does not enter another value. Actual profit margins vary by organization.

Key takeaway: Workplace injuries can create costs well beyond the initial medical or workers' compensation expenses. Estimating direct and indirect costs can help demonstrate the financial value of effective corrective actions and injury prevention.

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