700 Introduction to Safety Management

Direct and Indirect Costs

• Direct Costs, also known as insured costs, are those costs covered by workers compensation insurance, other minor medical costs, and direct damage expenses for the accident. The company pays insurance to cover these costs.
• Indirect Costs, also known as uninsured costs, refers to production time lost by the injured employee, coworkers, and supervisors; spoiled product, unhappy customers; cleanup time; schedule delays; training new employees; overhead costs; legal fees and increased insurance premiums.

According to the National Safety Council, when considering all industries nationally, the average direct and indirect claim costs for a lost-time injury is over $40,000, and a fatality can cost over $1 million.

Indirect/Direct Cost Ratios

Indirect costs are, on average, 2.7 times higher than direct costs. However, it's important to understand that indirect costs may be much higher. When estimating the ratio of indirect to direct accident costs, consider these three key points:

• Generally, the lower the direct cost, the higher the indirect-to-direct cost ratio. Indirect costs can be difficult to calculate because there is no 'typical' injury. According to the Department of Labor, this ratio can range from 1:1 to 20:1.
• If accidents happen in labor-intensive operations—where labor investment outweighs capital assets—the indirect-to-direct cost ratio will likely be lower.

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