Both direct and indirect workers compensation (WC) costs can have a substantial impact on a nonprofits bottom line. This is why it is important for organizations to understand the difference between direct and indirect WC costs, the financial impact of having too many claims, and how they can better reduce/mitigate these expenses.

Direct vs. indirect costs

Simply put, direct WC costs, also known as expected costs, are those that are covered by insurance. According to the Occupational Safety and Health Administration (OSHA), it is estimated that employers in the U.S. pay almost $1 billion per week for direct WC costs that typically include:

  • Employee wage benefits
  • Death/dependent benefits
  • Medical expenses
  • Vocational rehabilitation
  • Legal services expenses

In contrast, indirect costs, also referred to as unexpected costs, are those that aren’t covered under a WC policy. In fact, in many cases, indirect costs can exceed direct WC costs. The National Safety Council reports that indirect work-related injuries cost employers an estimated $13.3 billion annually. Indirect WC costs typically include, but aren’t limited to, expenses related to: 

  • Training replacement workers
  • Workplace accident investigations
  • OSHA fines
  • Implementing corrective measures
  • Lost productivity time, low employee morale and absenteeism
  • Repairing business equipment and property

Did you know?

If OSHA discovers workplace violations, an employer may be cited or fined a maximum of $13,653 per violation.

Three strategies for controlling WC costs

Because direct costs are covered under a WC policy, organizations may not be overly concerned with addressing these expenses since it is the insurance company that will absorb the loss. In addition, they may feel helpless in controlling indirect costs because these expenses can be difficult to predict.

For these reasons, it is important to educate your nonprofit clients regarding the level of control they can have over both types of WC claim costs. The top three strategies for doing so include:

  1. Implementing a return-to-work (RTW) program. A RTW program can reduce direct and indirect WC costs by helping employees get back to work as soon as they are able following an injury or illness. This can include modified-duty assignments that fall within the employee’s restrictions.
  2. Developing and maintaining a robust safety program. An effective safety and health program that is regularly reviewed can help reduce the number of workplace accidents and illnesses, have a positive impact on direct and indirect expenses, and reduce workers compensation claims. With fewer claims, the organization’s experience modifier (or mod-score) becomes lower and, in turn, can significantly reduce WC premiums.
  3. Conducting an annual policy review. Every year prior to renewal, contact your client to review their existing WC insurance policy. Are employee class codes in line with the type of work employees are performing? Has there been a change in payroll? What about open claims that should be closed? Are there workplace hazards that need to be addressed?

A note about volunteers

Because volunteers are not paid, they are not considered employees and are not covered under a WC insurance policy. However, enlisting the help of volunteers comes with legal risks involving claims related to injuries that can also have a financial impact on the organization. In addition to providing a safe work environment, your nonprofit clients need to consider the fact that accidents can and do happen to volunteers. For this reason, a volunteer accident and liability insurance policy to help mitigate these risks should be considered.


Insurance premiums are a big cost factor for nonprofits, as are claims. The good news is that these expenses can be managed. By working with your nonprofit clients in implementing standard best practices and regularly reviewing WC policies, you can help them better control direct and indirect WC costs.

About Charity First

The incredible services that nonprofits provide come with unique and complex risks that are part of their everyday work in serving the elderly, children and other vulnerable populations. It is why Charity First is committed to providing our retail partners across the country with best-in-class underwriting, consistent and responsive service, and risk management services that include workers compensation coverage and accident insurance for volunteers and participants. To learn more, please contact us at 800-352-2761 or