When discussing the costs associated with poor workplace health and safety, direct costs such as fines and legal costs tend to take centre stage. While fines given to a business following a safety failing are designed to have a significant impact on the business, there is a multitude of ‘hidden costs’ that many forget to consider. Yet these hidden costs can also have a significant, and in many cases, the ongoing financial impact on the business.
What are the direct costs?
Direct costs of a workplace accident or incident are measurable costs that can be added up by a business following the incident. Some of these include;
- Legal fines
- Paying out to replace or repair damaged equipment and property
- Sick pay
- Employment cover
- Other legal costs
The hidden costs
Hidden costs refer to longer-term impacts on the business due to unsafe work environments, even before an accident or incident occurs. According to NSC, indirect costs are $2.12 for every $1 spent on direct costs. Some of these hidden costs include;
- Delays of projects and schedules
- Equipment damage
- Investigation of actions and implementation to correct them
- Cost of other government benefits required by injured workers
- Loss of skilled workers
Loss of reputation
A hit to reputation due to an incident can lead to a loss of both existing and new customers, clients, investors and partners. While news of an incident can quickly spread amongst the industry, the media are also likely to pick up the story, reaching an even wider audience and painting the business in a poor light.
Not only can the PR costs to rectify the situation be huge, but in many cases, the damage is already done. Existing clients and partners are unlikely to want to associate themselves with your business and potential clients will simply look elsewhere.
A poor safety record will also make it difficult to hire quality staff who expect a certain level of care from the company they work for.
DPD Case Study
A driver working for DPD collapsed twice before he died on the 4th January 2018. Prior to this, the driver had been fined £150 by the company for missing a day’s work to attend a hospital appointment. In the weeks after the fine was given, Don Lane failed to attend further hospital appointments for his Type 2 diabetes out of fear of receiving additional fines.
The story has received national press coverage from news outlets in the UK such as the BBC, The Metro, The Independent, The Guardian and The Mirror. Many of the stories focus on the unfair treatment of Mr Lane and question the role DPD had in his death.
A quote from Lane’s wife states; ‘There has been no letter from head office, no apology. I’ve not heard a word from them. DPD was totally unsympathetic to my husband. The company were abrupt, cold, horrible and uncaring. They failed in their duty of care”
While it is yet unclear the reputation hit the company will face as a result, the press coverage has been unforgiving. A campaign has even been sent out to 38Degrees’, a popular campaign platform run by members of the public with 3 million-plus members, urging them to email DPD. The email template ends with ‘I shop in lots of businesses that use your delivery services, like John Lewis and Marks & Spencer and will be urging them to stop using DPD unless you change this unfair policy.’
A collapse in employee morale and productivity
An unsafe workplace, whether an incident has occurred as a result or not, has proven to lower levels of employee morale and ultimately, productivity.
If the work environment is particularly stressful, the company is likely to notice a rise in employee sick leave and a high turnover of staff. Not only are there high costs involved in turnover, but extra time and resources are spent on training and transitioning in new employees.
Alternatively, workplaces rated as good places to work have more satisfied and productive employees. These employees return to work more quickly after an injury or illness, are more committed to the business’ goals, and produce higher-quality products and services.
Loss of time and resources
An accident or incident can cost a business greatly in both time and resources even months and years after the initial incident. Some examples of lost time include;
- Legal cases – which can take years to resolve
- A second wave of press coverage if a sentence is given
- Lost working days – on average; 9.1 working days are lost for injuries, 19.8 for ill health, 23.8 for stress, depression and anxiety (HSE 2016/17)
- Time spent sourcing and training cover or replacements
In some countries, such as the UK, individuals within the company can be given a jail sentence, removing someone from a crucial position and requiring additional cover – not to mention the negative PR
- Delays to projects/work due to investigations or stop-work orders
- General workplace disruption
How can your business mitigate against direct and hidden costs?
Investing in health and safety may seem like an expensive process but it could save you thousands or even millions in the long run. A study by Arinite found that health and safety fines alone cost 65% more than the cost of compliance. Add in all the hidden costs and your business could be saving an incredibly significant amount of money by avoiding accidents and creating a happy, healthy and productive workforce.
To get started, it is important that you understand your legal responsibility and take all reasonable steps to follow health and safety legislation in your region. Carrying out risk assessments, implementing robust and reliable safety equipment and creating a positive safety culture, are all good first steps to take to create a safe work environment for all members of staff.
Please get in touch with us if you would like more information.