Most safety professionals understand the traditional benefits of investing in a safety program: fewer accidents and injuries, a better-trained workforce, improved morale and a better reputation with local regulators. In addition to keeping employees safe and healthy, a robust workplace safety program may also provide financial benefits to an organization. In fact, there is a general understanding among safety professionals that for every $1 spent on safety, one should expect a return of $3. This article examines how a safe workplace impacts the bottom line.
The financial benefits that an organization can expect to receive include:
- Decreased workers’ compensation insurance premiums
- Improved productivity
- Decreased medical and accident payments
- Increased financial opportunities
- Decreased regulatory citations and fines
Workers’ Compensation Insurance Premiums
Workers’ compensation insurance is required for businesses in nearly every state. Its cost is based on several factors, including class code, total payroll and an organization’s experience modification rate.
Class Code
A class code is a numerical code that is assigned by the National Council on Compensation Insurance (NCCI) or a state rating bureau to classify job occupations. For example, an outside salesperson’s class code is 8742, which has a rate of 62 cents, while a drywall employee has a class code of 5445, with a rate of $12.91. In Alabama, the codes are established by NCCI and all workers’ compensation policies follow NCCI guidelines.
Insurance carriers conduct an annual audit to ensure that employees are assigned to the proper class code. If the insurance carrier determines that employees are in the wrong class code, the organization could take a substantial financial hit. On the other hand, if the codes are accurate, then they might benefit by reducing their financial burden.
Total Payroll
The class code is a multiplier for every $100 of payroll. Therefore, the total payroll is divided by $100 and that is the payroll amount. For example, if you have 10 drywall employees with a total payroll of $500,000, your payroll multiplier would be $5,000.
Experience Modification Rate
An experience modification rate (EMR) is a rating determined by the NCCI, which reflects a three-year history of an organization’s loss experience. The EMR generally includes factors such as type of injuries, cost of injuries or number of injuries. A new company with no loss experience starts with an EMR of 1.0. If the company demonstrates a good safety experience (meaning very little loss), it will have an EMR less than 1.0 and those demonstrating poor performance will have an EMR greater than 1.0. The EMR is the primary factor that an organization can control when looking for areas to reduce cost. Simply put, the less total injuries and the less severe injuries an organization sustains, the more opportunities it has to save unnecessary costs and boost profits.
Most large corporations have selection processes for their contractors and suppliers. One of the key criteria in the selection process is the EMR. Some corporations will not select contractors with EMRs higher than 1.0.
Cost of Injuries
There are several factors that make up the cost of injuries: direct costs, indirect costs and priceless costs. Direct costs are insurance premiums or any medical payments not paid by the insurance company. An example of this would be in a case of minor injuries where the company paid the medical payment directly and no claims were filed. Indirect costs include loss of productivity or revenue streams, regulatory fines, hiring temporary employees and the rental costs associated with replacement equipment or vehicles. Priceless costs refer to those that aren’t as tangible: decreases in brand reputation and employee morale (and ultimately, productivity).
Improved Productivity
While many believe that safety slows productivity, data does not prove this. It may often appear that taking extra precautionary measures might slow production; however, when examining the overall production process and system, safety increases production through proper planning, accident avoidance and improved employee morale.
Loss of Revenue Stream
There are two main areas where revenue streams can be lost for an organization. Existing revenue streams can be lost due to accidents that destroy property and equipment, such as fires or explosions. Revenue streams can also be lost when contracts are denied because of an experience modification rate greater than 1.0.
Decreased Regulatory Citations
It is in the organization’s best interest to establish pre-accident relationships with regulatory agencies. Proactively seeking these relationships demonstrates a good-faith effort to protect the safety and health of employees. Fines may be reduced by these efforts to prevent and correct citations.
OSHA standards and regulations provide an admirable starting point for establishing a robust safety program. Great organizations evolve their safety programs into safety management systems, which are based on continuous improvement. Not only do these systems positively impact profit margins, they also execute the most important role of any organization: keeping employees safe and healthy.
W. David Yates, Ph.D, CSP, is a safety manager for Carmeuse North America and a faculty member for Columbia Southern University in Orange Beach. Yates is the author of “Safety Professional’s Reference & Study Guide” and has been training and educating safety professionals for more than 25 years. For more than 25 years, Columbia Southern University has been a leader in occupational safety and health education. Taught by experienced safety experts, CSU’s bachelor’s and master’s degree programs in occupational safety and health are recognized by the Board of Certified Safety Professionals as Graduate Safety Practitioner Qualified Academic Programs. CSU’s occupational safety and health degree programs meet the educational requirements mandated by the Board of Certified Safety Professionals for the Associate Safety Professional designation and the Certified Safety Professional designation.
