Costs Drive Safety Training Needs

By Shawn Adams Jan 1, 2003
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0103cov.jpg​Worker's comp, OSHA and indirect costs of accidents shed light on a company's safety training needs​

Workers’ compensation rates are increasing, and that trend is likely to continue—based on indicators such as high insurer losses and rising medical costs. For employers, the financial fallout from safety risks can be significant. In addition to workers’ comp costs, the federal Occupational Safety and Health Administration (OSHA) can levy fines of up to $70,000 for each violation. And, indirect costs related to turnover and lost productivity add up quickly.

Organizations trying to do more with less need someone in management to help keep those costs in check. Often, that person is not a trained safety specialist but the busy human resources professional. Unfortunately, many HR practitioners are not as experienced in this area. How, then, does an HR professional effectively deal with the important responsibility of safety and risk management?

Training is one of the key elements to reducing workplace accidents and the costs associated with them. HR is well versed in training and development, but knowing how to train is one thing; knowing what to train on is an entirely different matter. To find this out, HR must conduct a safety training needs analysis. And a good place to start is with the big three culprits of workplace safety costs—workers’ comp, OSHA and indirect losses.

Slashing Workers’ Comp Costs

The first step HR must take when assessing safety training needs is to determine the types of workers’ comp losses the organization has experienced in the past, and what types of losses should have been expected based on industry norms. Answering those two questions will help HR determine the organization’s true safety needs.

Records from the company’s insurance carrier should identify the firm’s loss history. Insurers must keep records about previous losses, not only to assess the risk the company represents and the rates that should be charged, but also to meet states’ statutory accounting requirements. Insurers are relying on the accuracy of loss records to keep their own companies solvent, so these records are an excellent source of information.

But keep in mind that some insurers choose not to file claims for small losses, which helps to keep their rates lower. This might or might not be legal, depending on state law. However, if your insurer has opted to avoid filing such claims, OSHA records and internal accounts payable records can help you complete the picture.

The size of your organization will help determine how far back into your company’s safety history you need to dig. The law of large numbers dictates that the larger the sample pool, the more accurate the final projection. So smaller firms need to go back farther to get an accurate picture of loss history.

Next, HR must benchmark its organization’s loss history. The insurance company maintains complex actuarial formulas to determine what types of losses a particular firm should experience when compared with similar firms. Unfortunately, even if your organization obtained these figures, you would need another actuary to explain the results, but the dollar value of losses your organization has sustained in the past is a good indication of your company’s safety problems. Once you’ve identified these shortcomings, you can develop appropriate training.

To benchmark your company against industry standards, turn to the federal government, which provides guidance, based on incidence rates, about the types of injuries the average company is likely to sustain. The Bureau of Labor Statistics (BLS) surveys selected companies annually. These companies must provide information directly from their OSHA records. These results are tallied and categorized into Standard Industrial Classification (SIC) codes. BLS also categorizes data by the type of injury or illness suffered. This information allows a company to determine its SIC code and compare injuries or illnesses sustained with those experienced by other firms within the same SIC code based on frequency, severity and lost days.

HR also can use OSHA incidence rates to benchmark safety practices.

Once you’ve compared your loss history with similar organizations, you can note areas in which further safety training is required to prevent future incidents.

OSHA Compliance

OSHA itself requires certain levels of training for organizations in its jurisdiction. This compliance may help prevent injuries and workers’ comp claims. Failure to comply can result in fines of up to $70,000 per worker for a willful violation, or $7,000 per worker per day for “failure to abate” violations. Certainly, the lack of training records can be used as evidence that you have not trained your workforce.

OSHA identifies its training requirements in OSHA Publication 2254, “Training Requirements in OSHA Standards and Training Guidelines,” and on the agency web site.

OSHA’s regulations, in its General Industry Standards and Construction Industry Standards documents, list more safety regulations than any company could possibly comply with. But if you search its database of citations by SIC code, you’ll see that there are 300 areas in which OSHA issued citations during the last report year. Although these 300 areas change from year to year, they remain relatively the same. In some ways, it’s as if OSHA is giving your company the questions on the exam in advance. Many of these violations can be prevented with education and training of the workforce. With a little effort, it is possible to comply with OSHA requirements, including its training standards.

You should note that 21 states do not fall under federal OSHA jurisdiction. Instead, these states are covered by federally approved state plans. (See “States with OSHA-backed Safety Programs.”)

In reviewing state plans, two facts will become obvious. First, various states focus on different aspects of safety compliance, although most are similar. Second, when reviewing the citations that various state OSHA units have issued, you will see that some states are much more stringent than the federal agency, while others are extremely weak. Regardless of whether your company falls under federal or state OSHA rules, you can find the blueprint for complying with OSHA training rules and information about violations OSHA has cited.

Indirect Costs of Safety Violations

The third reason you should conduct safety training, in addition to keeping workers’ comp rates in check and to comply with OSHA, is to reduce the indirect costs of losses, which can be significant. When people are hurt on the job, the organization incurs costs that insurance does not cover. These indirect costs are difficult to measure, but they can be a serious problem for your organization.

For example, if a company has a worker injured on the job, workers’ comp will pay the employee’s medical costs, provide weekly wage replacement benefits—known as temporary disability payments—and even pay permanent disability benefits for a permanent injury.

These costs are insurable and easily measurable. However, the indirect costs are another story. These can include turnover costs in the number of workers who quit because of the company’s poor safety record. Then the company incurs recruitment and training costs associated with hiring new workers. In addition, there are costs for lowered productivity when the new hires aren’t working as efficiently as an experienced worker. Also, insurance won’t pay for the time it takes management to investigate an injury, complete the claim forms or help the insurer defend the claim.

Your firm’s insurance rates are based on previous losses. Rate hikes can be an indirect cost of poor safety, as is property damage or damage to the firm’s reputation.

These indirect costs of poor safety are difficult to quantify, but they definitely drain financial resources. HR can analyze and measure the impact of workers’ comp increases, failure to comply with OSHA regulations and indirect costs of safety violations for its particular organization using resources readily available through your insurance carrier, internal OSHA records and government resources.

Your insurance company’s loss control representative and OSHA will help you with your company’s safety issues in general and training specifically. Safety starts with training. Now you have a simple blueprint to mark logical and quantifiable decisions regarding your organization’s training needs.

Shawn Adams, PHR, is director of risk management for AdminSolutions, a professional employer organization, in Charlotte, N.C. He has a doctorate in education and has taught safety at Southeastern Oklahoma State University in Durant, Okla., and Embry-Riddle Aeronautical University in Daytona Beach, Fla. His safety/risk management experience includes professional positions with USF&G Insurance, Capital Electric Construction Company and Lockheed Martin. Adams has received the Chartered Property-Casualty Underwriter and Associate in Risk Management designations from the Insurance Institute of America.

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