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
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.
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.
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