What Are the Indirect Costs for Workplace Accidents and How They Affect You

The National Safety Council (NSC) noted that there are 7 million work-related accidents every year in the United States. With the prevalence of workplace incidents, understanding indirect costs for workplace accidents helps determine their impact on both businesses and employees.

A friend of mine had an employee who suffered a concussion after a falling piece of metal struck him while working on a construction project. Being a new business owner, my friend simply sent the employee to the hospital and asked everyone else to go back to work. Little did he know, this accident would start a chain reaction of hidden costs such as lost productivity as other workers had to compensate for the injured employee, increased insurance premiums due to the workers' compensation claim, and project delays caused by investigations and workflow disruptions.

In this article, we’ll learn that while some costs are easier to spot and calculate, indirect costs can easily fly under the radar and affect your business in the long run. Knowing where indirect costs start and how they impact your business can help prevent unwanted losses from workplace injuries.

Key Takeaways

• Indirect costs often exceed direct costs and can have lasting effects. These hidden expenses can accumulate over time.

• Many businesses fail to account for hidden costs, leading to financial strain. This oversight can disrupt long-term financial stability.

• Prevention and proper management can mitigate both direct and indirect expenses. Hence, proactive planning helps reduce unexpected costs and financial burdens.

• Regular cost analysis and monitoring systems are essential for identifying emerging indirect costs. Early detection allows businesses to address potential issues before they escalate into major financial challenges.

What Are Direct Costs for Workplace Accidents?

Direct costs refer to the immediate financial expenses incurred after a workplace accident. Workers’ compensation insurance typically covers them and is readily quantifiable. According to the Occupational Safety and Health Administration (OSHA), work-related deaths and injuries cost the nation $171 billion in 2019. This billion-dollar loss typically included immediate and direct costs such as:

• Worker’s compensation payments: These payments cover the injured employee’s medical expenses and lost wages while they recover. Since workers’ compensation is mandatory in most industries, businesses must file claims after an accident, leading to immediate financial payouts through their insurance provider.

• Medical expenses: This includes the cost of emergency treatment, hospital stays, surgeries, physical therapy, and prescription medications required for the injured worker. Employers may also have to pay for ongoing medical evaluations and specialized care, depending on the severity of the injury.

• Indemnity payments: When an injured employee cannot work, indemnity payments compensate them for lost wages. These payments are calculated based on the employee’s earnings and the severity of their injury, ensuring financial support during recovery.

• Legal costs: In cases where disputes arise over liability or compensation, businesses may incur expenses for legal representation. This includes attorney fees, court fees, and any settlements or fines related to the accident, all of which add to the financial burden.

These direct losses are often significant and require immediate attention, but they do not account for the hidden financial impacts that arise from workplace accidents.

What Are Indirect Costs for Workplace Accidents?

Indirect costs encompass hidden expenses that arise following an accident but are not covered by insurance. These expenses are often greater than direct costs due to their prolonged impact on productivity and morale. In fact, indirect costs comprise about 71% of your total injury costs. It also doesn’t help that such expenses are often left unnoticed.

Why Are Indirect Costs of an Accident Often Overlooked?

After the incident, my friend told me that he tried his best to bounce back by taking all the measures he possibly could to mitigate the losses that came after. However, even after exerting his best efforts to tend to the needs of his employees, his business still struggled. 

Like my friend, many business owners focus only on visible expenses like medical bills and compensation claims, ignoring indirect losses for workplace accidents. While business owners may start employing safety parameters to prevent more accidents from happening, the effects of indirect costs of an accident are typically long-term.

The lack of proper tracking mechanisms makes it challenging to measure these expenses accurately. Additionally, assigning monetary values to factors such as employee morale, operational disruption, and reputation damage is difficult, leading to underestimation.

Examples of Indirect Costs of Accidents

A lot of people may find it difficult to tell what expenses are indirect costs of accidents. While there are several examples of significant indirect costs, these can be narrowed down to the most common ones:

Lost Productivity

When an employee is injured, their absence disrupts workflows and deadlines. Other workers may have to compensate, leading to reduced efficiency. Over time, repeated disruptions lower overall company productivity.

A study analyzing non-fatal injuries treated in emergency departments found that, on average, each incident resulted in approximately 11 lost workdays and a financial loss of about $1,590 per employee. This statistic shows that lost work days and productivity as indirect expenses for workplace accidents can amount to a lot. Businesses can prevent productivity loss by implementing temporary staffing and redistributing workloads among existing employees.

Replacement and Training Costs

Recruiting new employees to replace injured workers requires time and financial resources. Training replacement employees takes additional effort, further impacting productivity. These expenses can accumulate, straining business operations. 

Onboarding is an integral part of the training process, which also forms part of the training expenses. This process also involves introducing them to learn about safety regulations and other company guidelines to ensure compliance. Investing in mentorship programs and continuous learning opportunities can reduce long-term hiring and training expenses.

Administrative Expenses

Even if an accident does not result in a lawsuit, handling paperwork, investigations, and compliance issues adds administrative charges. These expenses increase with the complexity of the case. Prolonged administrative issues can further drain company resources.

In certain states, employees may have the right to bypass the workers' compensation system and sue their employer in civil court if they are deemed to be negligent. While legal fees are direct expenses, it’s important to know they usually escalate from indirect losses of workplace accidents. To prevent administrative issues from turning into legal disputes, tend to employee reports as soon as possible and maximize a management system wherein everyone affected is heard.

Damage to the Company's Reputation

A company with frequent workplace accidents may negatively affect its reputation and augment indirect costs. Customers may lose trust, and potential employees may avoid working there. This results in decreased revenue and difficulties in attracting top talent. 

To restore a damaged reputation, a company should acknowledge past issues and improve safety parameters. Strengthening protocols, training employees, and investing in safety rebuild trust and prevent workplace injuries. Clear communication with employees and the public reinforces the company’s commitment to safety.

Investigation Expenses

Conducting accident investigations can be costly and may take several months to complete. The results of these investigations often lead to the implementation of new policies and procedures, which can bring additional expenses. In some cases, companies may need to hire external consultants or specialists to assist in the investigation.

Examining workplace accidents helps identify the root causes and determine preventive measures. By analyzing what went wrong, businesses can develop strategies to reduce the likelihood of similar incidents occurring in the future. This proactive approach improves workplace safety and protects employees from potential hazards.

Equipment and Property Damage

If an accident damages equipment, businesses may face repair or replacement expenses. Downtime while waiting for repairs leads to financial losses. Renting temporary equipment further adds to operational expenses.

This may involve repairing damaged vehicles or property, fixing downed power lines, or replacing broken windows. After an accident, restoring the affected property or equipment is a matter of urgency. To further prevent this, business owners should conduct regular maintenance and invest in durable and premium-quality equipment.

Emotional and Psychological Impact

Workplace accidents can lower employee morale and create a fearful work environment. Stress and anxiety among employees reduce team cohesion and productivity. Long-term psychological effects can result in higher turnover rates.

Negative feelings such as anger and sadness can lead to further issues that can affect the overall performance and productivity of employees. Worse, these emotions can lead to even more accidents. Business owners need to create a physically safe workplace and one that supports overall employee wellness.

OSHA Penalties

It is OSHA’s mission to ensure safe and healthful working conditions for working men and women by setting appropriate standards. If a workplace accident is found by OSHA to be a result of management’s negligence, OSHA may penalize a business for that very reason. OSHA legal fees and associated legal actions are some of the possible kinds of indirect expenses.

Last January 7, 2025, OSHA enforced a memorandum readjusting the civil penalties for the year 2025. In the memorandum, OSHA summarized the minimum and maximum amounts for proposed civil penalties:

*For a repeated other-than-serious violation that would otherwise have no initial penalty, a Gravity Based Penalty (GBP) of $472 shall be proposed for the first repeated violation, $1,182 for the second repeated violation, and $2,364 for a third repetition.

**This amount shows the actual minimum penalty with all reductions which corrects error in the previous years’ serious minimum penalty posted.

Direct Costs vs. Indirect Costs

Direct costs are expenses that can be directly traced to a specific product, service, or project whereas indirect costs are not directly linked to a single output but support overall operations. Understanding the difference between these costs is essential for effective budgeting and financial decision-making. 

Performance management researcher Rikharddson notes the distinction between direct and indirect expenses using the iceberg metaphor, wherein the larger hidden part of an iceberg represents the indirect costs of an accident. In his study, he indicates that indirect expenses like workplace disruption expenses account for $10 billion and loss of quality of life to $62 billion.

How Do I Mitigate Indirect Costs for Workplace Accidents?

Effective safety protocols help businesses lower workplace accidents and injuries, reducing both direct and indirect costs. The U.S. Department of Energy found that every $1 invested in safety can result in $4 to $6 in savings. As workplace injuries, illnesses, and fatalities decrease, overall company expenses also decline.

Safety Through Prevention

Investing in proper training and high-quality safety equipment reduces the risk of accidents. It is also important to regularly assess gaps in workplace security with regular safety audits and risk assessments such as an emergency action plan. OSHA provides a sample template for an emergency action plan, which outlines the evacuation process and medical duties of staff or employees.

Emergency Preparedness

Implementing injury prevention programs can reduce workplace injuries, saving businesses a lot more than compensating for an accident. Not only do business owners need to secure the workplace, they also need to ensure that employees are well-prepared and well-informed. 

As shown above, conducting drills and training employees in first aid minimizes injury severity. First aid training is just one of the many components of a comprehensive safety program, which is crucial for minimizing accident risks. 

Tech-Powered Systems

Safety programs combine training, structured processes, and safety software to minimize risks and improve workplace conditions. There are a multitude of tools and software you can maximize to ensure safety and reduce indirect expenses of workplace accidents.

However, simply introducing new processes and safety software is not enough; employee participation is essential. Employers must cultivate a healthy workplace by maintaining written safety policies, enforcing consequences for violations, and continuously training workers. Implementing safety software solutions alongside these efforts strengthens security, reducing workplace injuries and lost workdays.

OSHA Resources for Determining Costs

Businesses must account for what are considered indirect costs for workplace accidents, and to make this easier, OSHA provides an array of valuable resources to help businesses assess accident expenses. Among these resources is the “$afety Pays” Program, which can help employers assess the impact of injuries and illnesses on their business profits.

Their Safety Pays Tool estimates potential expenses, including indirect ones. The tool uses the sliding scale table below to calculate the indirect costs of workplace accidents:

Another tool that OSHA provides under the $afety Pays Program is the Individual Injury Estimator, which helps businesses understand financial risks and plan accordingly. The estimator calculates how much sales revenue is needed to offset workplace injury losses based on profit margins and cost multipliers. Its aim is to demonstrate the financial impact of occupational injuries on businesses.

What to Do After a Workplace Accident

After my friend’s employee suffered that head injury, my friend shared that he had definitely learned about the impact of indirect expenses the hard way. He did practice due diligence in sending the employee to the hospital, however, he failed to follow the rest of the steps in a standard procedure after an accident — causing even more problems for his business and his employees, who had to work overtime to compensate for losses in productivity.

Tending to your employee’s needs immediately after a tragedy takes place can help reduce any further indirect costs. It’s important to ensure the following steps are taken:

1. Ensure Immediate Safety: Secure the accident area, provide first aid if necessary, and shut down hazardous equipment to prevent further injuries. Ensuring safety first reduces overall damage and expenses.

2. Report the Incident: Follow internal protocols for documenting accidents. After the workplace injury, notify law enforcement, OSHA or other regulatory bodies if required. Proper documentation is crucial for compliance and insurance claims.

3. Investigate and Learn: Conduct a thorough root cause analysis to prevent future incidents. Engaging safety committees or third-party consultants provide unbiased insights and learning from accidents helps create a safer work environment.

4. Support Employees: Offer counseling and recovery support to injured workers. Address coworkers’ concerns to maintain morale and productivity.
   
   

Expert Help Resources

Companies often underestimate the true financial impact of workplace incidents by overlooking indirect losses and without expert help, figuring this out can be more challenging. Professional consultants and safety engineers can help businesses conduct thorough cost analyses and develop targeted prevention strategies. OSHA and insurance providers also offer expert resources to calculate comprehensive accident costs, identify risk factors, and implement cost-effective safety parameters.

• OSHA: OSHA sets workplace safety standards to protect employees. They provide guidelines to help businesses comply with safety regulations. Compliance assistance and safety training programs are also available to support safety improvements.

• Certified Safety Trainers: Trainers and safety personnel assess workplace hazards and recommend safety measures. They provide training to employees on proper safety protocols. Their guidance helps reduce accidents and injuries.

• Employee Assistance Programs (EAPs): EAPs offer support for employees dealing with stress and mental health challenges. They provide counseling and resources to improve emotional well-being. These programs help workers stay focused and productive.

• Industry-Specific Safety Organizations: Safety organizations develop best practices for workplace welfare in specific industries. They offer resources, training, and guidelines to prevent accidents. Companies can use their expertise to enhance safety programs.

Seeking expert help is crucial for businesses to fully understand and address the full impact of indirect costs of an accident. By using resources from experts, companies can implement proactive safety measures and reduce long-term costs. 

Indirect Costs for Workplace Accidents FAQs

What is the number one cause of workplace accidents? 

Slips, trips, and falls are the most common examples. They happen due to wet floors, uneven surfaces, and poor lighting. Regular maintenance and proper signage help reduce these risks and also further reduce indirect costs for workplace injuries.

How do I determine the root cause of an accident? 

There are several ways to determine the root cause of an accident: By conducting interviews, inspecting the scene, and reviewing safety procedures. Owners should also identify contributing factors like equipment failure or human error and use findings to prevent incidents and future indirect costs.

How do I investigate an accident at work? 

Gather evidence, talk to witnesses, and document all findings when a workplace accident occurs. Analyze the data from what you have gathered to find patterns or safety violations. You should also implement corrective actions to avoid the recurrence and indirect costs of workplace accidents.

What can I do to prevent workplace accidents? 

Train employees, conduct safety audits, and enforce protocols to prevent workplace injuries from taking place. It is also a standard practice to use protective equipment and maintain a clean environment. Businesses should also build collective responsibility and encourage reporting of hazards to address risks early.

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