review. the. study. guide ethen summararize and . provide. 450. words

Course Learning Outcomes for Unit VI

Upon completion of this unit, students should be able to:

1. Explain fundamental business principles pertaining to safety and health operations.
   1. 7.1 List the five most significant financial benefits for an organization to invest in a safety system orprogram.
   2. 7.2 Calculate workers’ compensation insurance premiums based on a given set of data.
   3. 7.3 Compare the workers’ compensation insurance premiums for varying experience modificationrates from given data.
2. Explain scientific concepts that impact the occupational safety and health professional.
   1. 8.1 Discuss the energy release theory of accident causation.
   2. 8.2 Explain the near-miss relationship.

Required Unit Resources

Chapter 20: Accident Causation and Investigation Techniques

Unit Lesson

In 1971, the Occupational Safety and Health Administration was established as a regulatory agency responsible for setting and enforcing standards and regulations designed to protect worker safety and health. For many years following that, businesses relied on compliance to keep workers safe and healthy. Many, including early safety practitioners thought that compliance equaled safety. Most managers and supervisors understand that a good safety program can have benefits such as lowered accidents and injuries, a better-trained workforce, improved morale and improved reputation with local regulators. There is a general understanding among safety professionals that for every $1 spent on safety, one should expect a return of $3. This unit lesson will review some of the more common financial benefits an organization should expect to receive when investing in a safety program or system.

The financial benefits that an organization can expect to receive include:

• workers’ compensation insurance premiums
• improved productivity
• decreased regulatory citations and fines
• decreased “in-house” medical and accident payments
• increased financial opportunitiesWorkers’ Compensation Insurance PremiumsWorkers’ compensation insurance is required for businesses working in nearly every state. The cost of this insurance is based on several factors, including class code, total payroll, and an organization’s experience modification rate. The formula for premiums is based as follows:𝑷𝒓𝒆𝒎𝒊𝒖𝒎 = 𝑪𝒍𝒂𝒔𝒔 𝑪𝒐𝒅𝒆 𝒙 (𝑻𝒐𝒕𝒂𝒍 𝑷𝒂𝒚𝒓𝒐𝒍𝒍 (𝒇𝒐𝒓 𝒄𝒍𝒂𝒔𝒔)) 𝒙 𝑬𝑴𝑹 $𝟏𝟎𝟎Class Code

UNIT VI STUDY GUIDE Accident Causation and Investigation Techniques

 

OSH 4308, Advanced Concepts in Occupational Safety and Health 1

A class code is a numerical code, usually three to four that is assigned by the UNNatIiTonxaSl TCUouDnYciGl oUnIDE 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. Visit the workers’ compensation shop website for more information on codes and rates.

Each year, the insurance carrier will normally conduct an audit of codes to ensure that employees are in the proper class code. It is extremely important for the company to fully understand the definitions for each of the codes. If the insurance carrier determines that employees are in the wrong class code, it could mean a substantial financial hit on the organization that was unplanned. On the other hand, if the organization understands these codes, then they may 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. An example is that you have 10 drywall employees with a total payroll of $500,000. Your payroll multiplier would be $5,000.

Experience Modification Rate (EMR)

An experience modification rate (EMR) is a rating determined by the NCCI, which reflects a 3-year history of an organization’s loss experience. The EMR is a complicated numerical assessment but generally includes factors such as type of injuries, cost of injuries, number of injuries, etc. It is not determined simply by looking at the total losses. For example, if an organization has one injury resulting in a $70,000 loss in 3 years, the EMR rating may be less than an organization having seven injuries totaling $7,000 over a 3-year period.

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), then they will have an EMR <1.0 and those demonstrating poor performance will have an EMR >1.0. The EMR is the primary factor that an organization can control when looking for areas to reduce cost. To illustrate the importance of the EMR, look at the following three examples with the only difference being the EMR. Using the calculation below for the above drywall employees with a payroll of $500,000, we calculate the premiums (just for that class code) for an EMR of 1.0 as follows:

𝑃𝑟𝑒𝑚𝑖𝑢𝑚 = $12.91 (𝑓𝑜𝑟 5445) 𝑥 ($500,000 (𝑓𝑜𝑟 𝑐𝑙𝑎𝑠𝑠)) 𝑥 1.0 $100

Title

 

𝑃𝑟𝑒𝑚𝑖𝑢𝑚 = $64,550/𝑦𝑒𝑎𝑟

Using the same data, the results for all three EMR’s would be:

1.0 $64,550 0.75 $48,413 1.25 $80,688

$0 ($16,137) $16,138

Experience Modification Rate

Premium

Savings or Additional Cost (from 1.0)

       

This example calculation only shows one job classification. This step is repeated for each class code you have in the organization. As presented here, workers’ compensation premiums represent a significant expenditure for any employer. Simply put, lower the number of injuries, along with the severity of injuries and the premiums will ultimately save an organization thousands of dollars, which means more profits. Most of the large corporations have selection processes for their contractors and suppliers. One of the key criteria in the selection process is the EMR. Typically, corporations will not select contractors with EMR’s higher than 1. There are, of course, some exceptions if you already have a proven track record with that organization.

Cost of Injuries

There are several factors that go into the cost of injuries and they include: • Direct costs

OSH 4308, Advanced Concepts in Occupational Safety and Health 2

• Insurance premiums UNIT x STUDY GUIDE
• Any medical payments not paid by the insurance company (such as thTeitclease for minor injuries paiddirectly to the company and no claims filed)
• Indirect costs (these range from 1.1 to 4.5 times the direct cost). If the direct costs are <$2,999 then the multiplier is 4.5. If the direct costs are >$10,000, then the multiplier is 1.1. Examples are:

o Lost productivity
o Rental costs for replacement equipment or vehicles

o Loss of revenue stream
o Regulatory fines
o Hiring of temporary employees

• Priceless costs
  o Brand reputation
  o Decrease in employee morale and ultimately productivity

To calculate the true financial impact of an injury, use the following equation (DC = Direct Cost):

𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑁𝑒𝑒𝑑𝑒𝑑 𝑡𝑜 𝑚𝑎𝑖𝑛𝑡𝑎𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = 𝐷𝐶 + {𝐷𝐶(𝑚𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟)} 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 (𝑑𝑒𝑐𝑖𝑚𝑎𝑙)

The following example illustrates how much in additional sales are needed in order to maintain a 5% profit margin.

Example: An employee receives a laceration to the thumb and palm of their hand resulting in direct costs of $1,500 (Note the $1,500 is < $2,999, so a multiplier of 4.5 will be used).

𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑁𝑒𝑒𝑑𝑒𝑑 𝑡𝑜 𝑚𝑎𝑖𝑛𝑡𝑎𝑖𝑛 5% 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = $1,500 + {$1,500 (4.5)} 0.05

𝐴𝑑𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑁𝑒𝑒𝑑𝑒𝑑 𝑡𝑜 𝑚𝑎𝑖𝑛𝑡𝑎𝑖𝑛 5% 𝑝𝑟𝑜𝑓𝑖𝑡 𝑚𝑎𝑟𝑔𝑖𝑛 = $165,000

Improved Productivity

While many believe that safety slows productivity, the data does not prove this out. It may often appear that taking extra precautionary measures may slow production. When looked at 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 important ways that revenue streams can be lost for an organization. The first view is that existing revenue streams can be lost due to accidents resulting from fires, explosions, and other incidents which destroy property and equipment. The second way is to be denied contracts based on an experience modification rate >1.0.

Decreased Regulatory Citations

The primary regulatory agency for safety in most states is the Occupational Safety and Health Administration (OSHA). Some states have their own state OSHA that will be the primary regulatory agency. Most owners of businesses can go for several years without ever having a visit from an OSHA representative because of the agencies limited resources. The question then becomes, what is the likelihood of an OSHA citation and fine? The answer to this is that OSHA has recently changed some of their reporting procedures which require a significant incident or fatality such as an overnight stay in a hospital (previously it was three or more hospitalizations from a single incident). When this occurs, the likelihood of OSHA coming to your facility and issuing a citation and fine is significantly increased. OSHA has also increased their minimum fines to $13,494 for an other-than-serious violation. While this may not seem insurmountable, post-accident investigations do not usually result in one citation.

  

OSH 4308, Advanced Concepts in Occupational Safety and Health 3

It is in the organization’s best interest to establish pre-accident relationshipsUwNitIhTrxegSuTlaUtDorYy GagUeInDcEies, which demonstrate honest demonstrations of good faith efforts to protect the safety and health of employees. Fines

can be reduced by the demonstration of these good faith efforts to prevent and correct citations.

Summary

OSHA standards and regulations provide a starting basis for establishing a good overall safety program. Great organizations evolve their safety programs into safety management systems, which are based on the plan-do- check-act (PDCA) model of continuous improvement. The investment in such programs and systems can positively impact the profit margins of an organization.

Suggested Unit Resources

In order to access the following resources, click the links below.

The Occupational Safety and Health Administration (OSHA) published an article on worker rights and protections on the following site.

Occupational Safety and Health Administration. (n.d.). OSHA worker rights and protections. U.S. Department of Labor. https://www.osha.gov/workers

The Occupational Safety and Health Administration has published their view on accident investigation for work-related injuries, as well as near-misses. This overview can be found on the following site.

Occupational Safety and Health Administration. (n.d.). Incident investigation. U.S. Department of Labor. https://www.osha.gov/incident-investigation