The real story about workers' comp costs

This article ran in the Louisiana Restaurant Association Fall 2013 of The Source, within the A La Carte magazine. The Source is a publication designed to further educate LRA SIF participants and prospective participants about workers' compensation.

While assisting members of the Louisiana Restaurant Association Self Insurer’s Fund for Workers’ Compensation (LRA SIF) to improve their safety and health programs, one of the most common problems seen is employers who attempt to solve their safety and health problems by strictly focusing on Occupational Safety and Health Administration (OSHA) codes and standards and ignoring sound loss prevention and control measures.

One example of this was a 65-employee facility that was recently visited by OSHA and given a $7,000 fine. They were in the process of rewriting their company’s Safety Policy and Procedures at a cost of more than $10,000.  When questioned about how their claims had also affected their workers’ compensation premiums, they had no idea. A brief investigation revealed that their workers’ compensation premiums had risen to more than $20,000 over the last several years! And because of the excessive losses over the last two years, their premium could rise an additional $10,000. 

The likelihood of OSHA visiting your facility is slim unless you have a fatality or an employee complaint. However, your workers’ compensation costs accrue every year like clockwork. These costs affect your business’ ability to make a profit.  The owner of the company mentioned above probably drives by competitors on his way to work every day that are paying well over 50 percent less for their workers’ compensation coverage. Most businesses cannot afford to pay 50 percent more in workers’ compensation premiums.  That is why your injury and illness prevention efforts should legitimately be an integral part of your company’s management plan and not just an ancillary OSHA compliance program.

Direct and Indirect Costs

All employers are familiar with the direct costs of workers’ compensation. Direct costs include medical bills, pharmaceutical bills, lost wages, mileage reimbursement, etc. However, more important than the direct costs of workers’ compensation claims are the indirect costs.  The reason that the indirect costs are more important is that statistically they are 5 to 10 times more costly than the direct costs! The reason they are more costly is because you are not insured against those losses. All indirect costs of claims are paid directly by you—the employer. 

Some examples of indirect costs include:

• Training replacement workers
• Reduced productivity because of the breakup of a crew
• Manager’s time spent dealing with the claim
• Lost production/productivity due to work stoppage
• Repair or replacement of damaged equipment
• Overtime of additional workers

Although this list includes some of the major indirect costs associated with claims, these are by no means all of the indirect costs that may affect an organization. The list of the indirect costs can be quite lengthy.

How Does Your Business Compare?

Is good enough really good enough? What steps are you taking to ensure that your workers’ compensation premiums are as low as possible? If you compare your business to other businesses and feel that your business is just about average, you should ask yourself if average is really good enough? If your competition is able to reduce their workers’ compensation direct and indirect cost then they ultimately will be able to produce a product for less. Workers’ compensation claims should be thought of as losses to a business like any other losses and controlling them can be managed very much like many other parts of your business. Simply, safety and loss control needs to become an integral part of your business. 

However, many business owners say that controlling their losses or putting safety first is not their main business. Their number one priority is producing a good quality product at a fair price. In order to do that however, a business must operate efficiently with as few interruptions as possible. Injuries and illnesses are interruptions that affect a business in similar ways to breakage of equipment. They disrupt the operations and cause a loss of productivity and efficiency.

What Can You Do?   

• Determine your workers’ compensation costs—both the direct and indirect costs (multiply your direct costs by 5-10 percent).
• Evaluate your operation and determine what types of safety and loss control programs should be in place and determine the costs of implementation.
• Designate a Safety Coordinator. This person should have enough time to devote to safety and loss control and not simply wear several hats within the operation.
• Implement a safety and workers’ compensation loss control program that includes employee participation.
• Regularly monitor and evaluate your program and make changes as necessary.
• Contact the loss control department of your workers’ compensation carrier for assistance in developing your safety and loss control programs.

If you are a member of the LRA SIF and you would like additional information on developing your workers’ compensation loss control programs please contact LRA SIF VP of Loss Prevention Victor Balbuena, vbalbuena@lra.org or (504) 454-2277.

The LRA SIF recently reduced its rates for the third time in three years. If you are interested in receiving a quote for  your workers' compensation needs, please email lrasifquotes@lra.org.