Risk Management

Dodging OSHA’s Earnings Threat

Corporate risk managers breathe easier after Congress dispels the doom of the ergonomics rule.
David KatzMarch 8, 2001

In the end, employers dodged a bullet. The Occupational Safety and Health Administration ergonomics rule could have added a loud “pop” to workers’ compensation costs.

But on Wednesday, the House passed a bill disapproving the voluminous rule, as the Senate did earlier in the week. Now the bill is in the hands of President Bush, who is expected to sign it.

That means the time has come for employers to create their own popping sound by opening the champagne.

Following the House vote, risk managers, whose standing between the CFO and the workplace puts them in an ideal spot to assess the potential damage, were already feeling relieved enough to talk about the costs that might have been.

To be sure, they were contemplating the joys of escaping a system in which a single complaint of a sore arm could trigger the purchase of a roomful of ergonomically correct chairs. Not to mention big potential risk-assessment and training costs.

But they felt that the huge volatility added to workers’ comp costs would have been the most devastating fallout from the rule.

Most worrisome was the clash between the OSHA compensation scheme and the 50 state workers’ comp systems. Under the OSHA rule, injured workers would get 90 percent of their wages if they stay home. Under workers’ comp, they typically get about two-thirds of their pay while they’re out of work. For more on the conflict between OSHA and workers’ comp see an earlier “Risks & Benefits.

For corporations, the conflict would likely have sparked unpredictable cost spikes. Chris Duncan, director of risk management and insurance for Delta Air Lines, tells CFO.com that if the rule had remained in place “an explosion in workers’ comp costs” would result.

Workers’ comp could become a “highly variable” expense item, he adds. Rule or no rule, Delta, which will soon embark on a “risk-mapping” process aimed at categorizing the airline’s exposures, defines workers’ comp as a “material” risk, he says.

Delta calls a risk material when it varies significantly from period to period, Duncan says. Besides workers’ comp, for instance, fluctuation in aircraft prices stemming from inflation is a material risk.

(After separating such exposures from more predictable ones, Delta plans to fund the more volatile hazards in an “enterprise risk management” program in which the risks can be hedged against each other in a complex risk-financing program.)

Overall, the volatility added under the OSHA rule would no doubt be spurred by friction between the federal and state pay schemes. Jim Green, the risk manager of Justin Industries in Fort Worth, Tex., describes how thorny a matter claim management could become.

Under OSHA, if an employee were to complain of a sore arm, for instance, the employer would have had seven days to deal with the problem “administratively,” by, for example, moving the employee to another job temporarily. During that time the employee could try to ease pain by taking an over-the-counter medication like ibuprofen, Green says.

After a week, the worker probably would have visited a doctor, triggering the workers’ comp claim, Green notes. At that point, confusion would have set in. Which pay system would have dominated? Under the Texas workers’ comp system, “the minute an employee sees a provider, that’s a workers’ comp claim,” he adds.

For the first week, assuming the injured employee comes to work, the employer would have had to pay all of an employee’s wages. In the second week, the worker would become eligible for workers’ comp benefits, which the employer could have used to offset the OSHA benefits bill, Green thinks.

He was only speculating, of course, since no one really knows for certain how the two compensation systems would have interacted and which would ultimately have carried the day. The courts would likely supply the answer in some situations.

Besides the wage snarl, handling employee’s taxes represented a potential employer nightmare.

Workers’ comp benefits are not subject to FICA or income taxes, while benefits paid under the OSHA rule would be subject to FICA, Green notes. “Does this make for an interesting calculation?” the risk manager asks, wryly.

Such potential administrative messes reflect OSHA’s lack of foresight in hatching its vast scheme in the first place. But, assuming the rule is voted down, employers should be grateful for the warning the agency has given them.

The threat to earnings represented by the rule is fearsome enough to alarm lax employers to get their ergonomics acts together. OSHA has given them a taste of what could await them next time around if they fail to act.