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“Budgeting” for Accidents and Injuries


Many of us have a responsibility for creating and managing budgets for a business or a department within a business. As safety consultants, we will often ask owners or executives if they’ve established a budget for safety. Clever owners and executives will say safety is fully integrated into the business and budget, but few can qualify their answer with an actual number.  

It is said safety is one of the first things cut when expenses outpace revenue. Ironically, the reason why safety is cut first is because it was never really budgeted, to begin with! So what should be included in a safety budget? The answer is more complex than you might think. Most companies cannot afford to hire a full-time safety professional to oversee their safety program, but instead “appoint” another employee with partial responsibility for safety. The time this employee will be expected to handle safety should be considered a safety budget item. Safety glasses, fall protection equipment, arc flash gear, respiratory protection, and other forms of personal protective equipment are obviously an important part of a safety program but often aren’t budgeted for in a safety specific account.

And it gets more complicated. Most businesses must provide safety training, but have they budgeted the paid time it will take to train their employees? The answer is typically no because we find many owners and executives are unwilling to give more than 15 minutes to train employees in important subjects. It isn’t that they don’t want to train their employees, it’s because they haven’t budgeted for the time it takes to do it effectively. It is also said if you can’t measure it, you can’t manage it. Well, it’s impossible to manage a budget that doesn’t exist.

Ironically, the one thing some owners and executives do budget for are the costs associated with accidents and injuries involving their employees. This sounds cold and heartless, but it happens quite accidentally (no pun intended). The price of workers’ compensation insurance is based on the nature of work performed by employees and the losses experienced by the insured business. Until workers’ compensation losses reach the point where insurance is difficult to find, businesses simply use what they currently pay for insurance in preparing budgets for the next year. With a history of losses, the business is actually budgeting, and planning, for injuries in the future policy year. I’m no CPA, but this sure sounds like bad policy and a bad idea!

Business has little control over the cost of raw materials, energy, and transportation costs, but they do have more control over the cost of workers’ compensation than many other business-related expenses. An experience modification rating of .5 means a business will pay one half what their “average” competitor pays for workers’ comp insurance. Instead of blindly budgeting for losses higher than what they should be, why not create a real budget covering activities that can prevent losses? This would result in a reduction of the cost of insurance. As you prepare your budgets for next year, will you be budgeting for accidents and injuries involving your employees? 

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.