Imagine your business as a steamship. Outfitted with the best equipment and crew you can find, you’ve carefully built that ship. As you sail across the sea of business, you realize it is working just as you planned. Then, one dark night, you notice a white object ahead and . . . Well, we all know how that turns out.
The workers compensation costs to employer are often compared to an iceberg. The insurance company pays for the direct costs of the claim, also known as the tip of the iceberg. You pay for all the indirect, hidden costs of the claim. This is the giant portion of the iceberg below the surface you cannot see initially.
To keep your business steamship off the iceberg of workers’ compensation, it’s important to first understand the costs and then the solutions.
The Tip of the Iceberg: Workers Compensation Costs to Insurance Companies
Workers’ compensation coverage is really just a contract. In that contract, the employer agrees to pay a premium while the insurance company agrees to pay for injury claims.
Made simple, your workers’ compensation insurance company is required by law to pay for three components of a claim which are referred to as the direct costs of a claim. These are the costs you will see on the carrier loss run:
- All medical payments incurred to make your injured employee well – doctor visits, hospital stays, prescriptions, tests and surgical procedures.
- The indemnity payment when your employee cannot work due to an injury – a portion of their normal wages to help them through a time when they cannot earn income.
- Expenses – a wide variety of costs. The most common expenses associated with workplace accidents are legal fees. These are paid if a claim becomes litigated.
While this will cover much of the direct cost of the injury, it does not come close to covering all the indirect costs associated with workplace accidents and injuries. The indirect cost is what we consider being the part of the iceberg lingering beneath the surface.
The Hidden Part of the Iceberg: Workers Compensation Costs to Employer
Even though your insurance ensures your policy carriers will cover some of your workers compensation costs to employer, this does not mean you still won’t be financially affected by the accident. It is difficult to measure the exact indirect costs of a workers’ compensation claim.
Simply said, indirect costs translate into the wear-and-tear on you and your business. OSHA estimates that you pay 1 to 4.5 times more than the insurance company by the time the claim is over. These costs include:
- Loss of a worker – may cause a reduction in efficiency, lost production, overtime, a reduction in quality of work and time/effort to rehire, retrain or find a temporary solution until your employee comes back to work.
- Management time – you and others in your organization will lose valuable production time because you will have to investigate the accident, manage the claim through interaction with the insurance company, spend time retraining and explaining to workers what is happening.
- Reputation and goodwill – this can include a loss of ability to obtain or bid for good jobs because your safety record is ruined. A loss of reputation in the community may depress your ability to find the best employees or worse, your own trusted employees begin to believe you have an unsafe, uncaring organization and leave. And if your accident is a serious, high-profile accident, you may find your company in the embarrassing position of being “film at 11.”
- Loss of equipment or products – the accident may have ruined your equipment or even damaged a customer’s possess that you have to replace.
- Future insurance costs – having a workers’ compensation claim today most probably means you will pay more for insurance in the future. Insurance carriers will look at your claim record (loss runs).
As you can see, there is a lot more involved with workers compensation costs to employer than just paying your insurance premium. In fact, the financial burden of an accident can be quite detrimental to your day-to-day business success. However, you can avoid almost all this stress and tension by putting more focus on how to avoid accidents in the workplace.
As you are the captain of your business steamship, you have the power to create prevention. Here are a few common sense steps you can follow:
- Become a super-advocate. If you model safe behavior and push your crew for safe behavior, you will reduce your potential for a workers’ compensation claim.
- Look for the “what-if’s. “ Stand outside of your normal thought process and ask what if the unexpected were to happen – would it hurt an employee? Could you prevent it?
- Follow through. If you think it can happen, it will sooner or later. Take care of the problem now.
- Get your injured employee back to work. Have a return to work process that gets your injured employee back on the job even if it’s a temporary light duty job. Returning the injured to work will reduce almost all of the indirect and direct costs listed above.
Accidents can and will happen. It is how you prepare for these accidents that determine your overall workers compensation costs to employer. You are the captain of your business steamship and the choice is yours: nap in your cabin or look for icebergs.