Connecting the Dots: Safety and Profitability

The most efficient weight-loss book would have only two chapters, each with one sentence: Chapter One – “Eat less.” Chapter Two – “Exercise more.” There’d be a similar book for improving your company’s health: Chapter One – “Reduce costs.” Chapter Two – “Increase revenues.” This article hopes to make a case for the financial benefits of implementing a rigorous safety culture – a commitment that can both reduce costs and increase revenues.

The first and most obvious area where cost savings can be achieved is with Workers Compensation insurance. Many business owners don’t realize how much control they have over their experience modification rate (EMR or Mod Rate), which is used to adjust the “book rate” for Workers Comp premiums. A company’s EMR is based on how its claims experience compares to industry averages in its classifications, with a 1.0 rating representing the average. “Insurance costs are controllable costs – they’re not a fixed expense,” says Mark Oldham, CSP, an executive consultant in risk management for Fireman’s Fund. Insurance is a significant percentage of the overall cost of business (just add up your Workers Comp, liability, automobile, property, inland marine, umbrella, professional liability, and employee benefits). “It’ll have a disproportionate impact when costs can be lowered,” states Oldham. “Insurance trades fixed costs for unknown costs, and premiums are directly influenced by prior experience and control over operations.”

In fact, Workers Comp operates like a line of credit, where the insurer spreads the cost of a company’s predicted future losses over time, meaning that premiums are in essence just a way of financing a company’s cost of accidents and injuries. So, obviously if a company can reduce its claims over time, it will reduce its cost of business. This can translate to a measurable effect on the bottom line. The example below illustrates the difference in premiums between a .80 EMR and a 1.20 EMR for just one of a contractor’s job classifications:


Modifiers are also applied to a company’s general liability and auto insurance, but the EMR is a key indicator of a company’s performance. Oldham says, “It’s used as a litmus test of how you run your business. If you can’t work safely, you can’t produce a quality product.” Many insurance carriers will meet with a prospective client before offering a quote, and perform a loss control survey to gather information on its operations. This will assist the underwriters in understanding what the company does and how well it does it, and can have a direct bearing on cost. Underwriters make empirical decisions based on these tangible factors to determine debits and credits against the book rate. The carriers will also advise the client on how to control losses, identify risks, and develop appropriate action plans and follow up properly.

Fireman’s Fund also provides its clients with post-loss consulting services if warranted. They will help prepare a mutual action plan with specific objectives and timelines for the risk consultant and the client – then execute the plan in concert. At the conclusion, the desired reduction in hazards and risk factors should be clear enough for the client to give an “as a result” statement. If it can’t, the plan was merely a series of activities rather than a strategic effort.

For those contractors that don’t have a full-time safety department (or even those that do), Oldham suggests taking advantage of the many services that insurance carriers offer, such as subscriber-only content on their web sites with training programs, educational resources, topics for safety meetings, and so on.

Oldham emphasizes that successful companies are engaged. There’s an awareness of the true costs of risk, an understanding of what drives risk, and mechanisms to control the cost of risk (such as diligent hiring practices, strong training programs, aggressive injury investigation and correction efforts, and claims management like bringing injured employees back to work ASAP). When Fireman’s Fund performs a loss control survey, Oldham says that they look for employers who “get it.” These are companies that don’t just focus on the cost of insurance premiums. They understand that accidents and injuries affect their other business costs (such as the state unemployment compensation billing, which increases with the turnover rate); and they understand why.

Creating and keeping a safety culture

Some contractors look to incentive programs as a way to reduce injuries and accidents. But, according to Dianna Wiggins, an independent loss control consultant, “There’s a place for safety incentives after you’ve changed the safety culture – by developing a really good safety program.” First, stop the injuries and accidents by implementing a good program with excellent training and management. And a prerequisite to culture change is a genuine, highly visible, unwavering commitment from the very top of the organization. Because good safety practices can be perceived as slowing productivity, there is a natural tendency for line employees to view them as arbitrary and annoying rules that are imposed by “the office.” This isolates the safety personnel, who are peers, putting them in the role of “safety police” (with all the associated avoidance behaviors that accompany that mindset). A key part of the visibility shown by management is active and vocal support for the safety staff.

“After the accidents stop, employees can get complacent,” states Wiggins. “Two to three years after instituting culture change, safety incentives can help sustain the performance.” In a previous position as Safety Manager for a medium-sized manufacturing company, Wiggins implemented a highly-successful safety program that helped reduce the company’s EMR to .76. This reduced the Workers Comp premiums by almost 60%, which translated to hundreds of thousands of dollars saved per year. Once that was achieved, she maintained that level of performance with clever incentive programs (costing only around $10,000 per year), and the company won over 30 national safety awards.

Wiggins also advocates for an early return-to-work policy, which can help reduce the cost of Workers Comp. This policy allows injured employees to return to work in a light or modified work position until they’re fully recovered and can resume normal work duties. Everything that can be done to reduce the claim cost and get the employee back will have a positive impact on the employer’s cost of business. Justin Cremers, a Safety Coordinator for SMI, a safety consulting firm, counsels his clients on the benefits of an early return-to-work policy. “The type of claims experienced and what’s done to control the cost of claims has a significant effect on Mod Rates,” says Cremers. Claims for medical treatment only are usually less severe and are reduced by 70% before they’re applied to the formula. Cremers urges his clients to take advantage of this by ensuring that injured employees return to work as soon as possible. “This is where an effective claims management and return-to-work program can have a dramatic effect,” he says.

“It’s critical that a job description should include what kind of physical demands are placed on the employee,” emphasizes Wiggins. That document should be given to the doctor so (s)he’ll know what light-duty or modified work the injured employee can perform while recuperating, which will make it more likely that (s)he’ll approve a quick return rather than keeping the employee off work. (A key point to remember is that the employee must have signed the policy.) “You can even get your employees to work at a not-for-profit location, and write it off as a charitable contribution,” she suggests.

Another factor affecting costs can be the OSHA 300 log and 301 Incident Report. Wiggins says that many companies have a high incident rate because they’re recording things that they shouldn’t – they don’t realize that first aid, visits to a doctor for x-rays or blood tests, and even drilling a fingernail or toenail to relieve pressure are not recordable. “The effect of that,” she points out, “can be losing business with companies that don’t allow contractors with an incident rate higher than the national average.”

Similarly, opportunities to perform work for the government and large companies that have rigorous safety standards exist only if a company’s EMR is below 1.0; and the chances improve the lower the Mod Rate gets. But this is only part of the equation. If your firm becomes noted for safety excellence, your customer base is much more likely to increase and repeat – which is exactly what happened during Wiggins’ tenure.

Actions, when allowed to repeat, become behaviors; and behaviors develop into cultures. “A culture of safe work practices and intelligent/informed risk-taking is the strongest operational mindset any employer can ever hope to have,” says Oldham. Companies that "get it" focus on the actions of their employees to protect and nourish a safe-work culture – not just "Can we do it at a profit?" but "Can we do it at a profit, safely?"

You Can Get There From Here

In an old joke the great classical pianist Arthur Rubinstein is asked, "Pardon me, sir, how do I get to Carnegie Hall?" He replies, "Practice, practice, practice." This advice would be well-taken by anyone wondering how they can reach their goals, whether personal or business.

For one member of Remodeling’s Big50 class of 2010, his journey in life and work confirmed the truth in Rubenstein’s apocryphal wisdom. Chris Wright, the owner of WrightWorks in Indianapolis, spent years accruing the skills for success and then building a business that is now swamped with repeat work and referrals; a business that has won three regional and one national CotY awards, and two Chrysalis awards this year… sort of the remodeler’s version of getting to Carnegie Hall.

Before he started WrightWorks in 1998, Wright benefitted from a series of powerful role models: His grandfather and father, who instilled a competitive fire and an expectation of excellence in him; his first manager at Federal Express, an ex-Marine and police officer who was a strong and principled leader; a martial arts instructor who helped him understand how to be the best person he could be, and who also hired him as the school’s program director. Here Wright learned the connection between belief in what you’re selling and the success of your sales process.

After leaving the martial arts school Wright partnered with his cousin, renovating older homes for sale to low-income families. This is where he learned to love the process of revealing the beauty of an old, neglected house. While working on the low-income projects, Wright met a designer who was starting his own business. This was the impetus for launching WrightWorks, and together they did small projects like kitchens and bathrooms. Today they collaborate on large six-figure projects.

Like many startups, Chris felt that “It was all about the craft – if it’s perfect when I’m done, I’ll be successful.” Business realities got in the way, though. “I got beat up. If there’s a mistake to be made in the business, I’ve made it.” He floundered because he didn’t have a strong financial background and had no frame of reference for pricing his work – so he’d just shoot in the dark, with unpredictable results.

Over time, he’s come to believe that business skill is equally important to the craft. “I have a deep respect for the people who have put in the time and effort to systemize every part of their businesses,” he states. As he matured, he realized that “If I build it right but don’t make money, my clients aren’t going to care.” In other words, a great reputation wouldn’t matter if he was out of business. Today his mantra is that “it’s either going to work for all of us, or it’s not going to work.”

“The relationship with the client has to have balance. There has to be mutual respect and appreciation. Problems usually happen when there’s an imbalance in the relationship.” Wright has grown very sensitive to that, and “when an imbalance starts to creep in, I know when to step in and try to bring it back to where it needs to be.”

Wright is also sensitive to the fact that the home is a very primal thing. “Your home is your cave…it’s an extension of who you are.” And when a contractor comes into your home and “tears the guts out, they’re kind of tearing away part of who you are.” Being sensitive to that fact is “very, very important to my success,” Wright believes. It’s equally important to develop a team of people that share this view, and Wright is quick to credit his team – which includes his vendors – for their contribution to the success of his company.

At the core of WrightWorks is a set of values that enshrines hard work and personal accountability. In a way these were the “directions” Wright followed that led him through each stage of his career to the present – a highly-regarded company that thrives even in a weak economy… a path worth following if you’re just starting your career.

Independent Contractors…or Employees?

On June 17, Department of Labor (DOL) deputy secretary Seth Harris testified in a Senate hearing about a proposed rule that would impose additional recordkeeping and notification requirements for employers. The text of this testimony can be found here. Reading all 4,465 words is enlightening.

Mr. Harris’ testimony was directed at “worker misclassification,” which occurs when a worker who is legally an employee is treated as an independent contractor. He cited five industries where misclassification is most prevalent, and construction was first on his list.

The testimony was in support of proposed legislation (the Employee Misclassification Prevention Act) that would make misclassification a violation of the Fair Labor Standards Act (FLSA); providing the DOL with additional tools for enforcement, such as monetary penalties for recordkeeping violations. This legislation would also establish a legal presumption that a worker is an employee and “put the burden of proof on the employer” to demonstrate that the worker is an independent contractor. Given the political opposition, the odds of the bill passing this year is not high. But Mr. Harris made it clear that the DOL nonetheless intends pursue the same ends with “new tools to detect and prevent worker misclassification” in pursuit of its “good jobs for everyone” mission.

Specifically, the DOL wants to implement “a broad strategy that requires employers to understand [emphasis added] that the burden is on them to obey the law.” But whether or not a worker is an employee depends on which law is applicable. Mr. Harris favors the FLSA’s “economic realities” test, which is broader than the common law test used by the IRS.

Mr. Harris went on to state, “We call this compliance strategy ‘plan/prevent/protect.’” This new strategy will require employers to:

1. Create a plan for identifying and remediating risks of employment law violations and make the plans available to workers so they can participate in their creation, fully understand them, and help to monitor their implementation.

2. Implement the plan in a manner that prevents legal violations.

3. Ensure that the plan’s objectives are met so it actually protects workers from violations of their workplace rights.

“One way in which ‘plan/prevent/protect’ will be implemented is by increasing transparency in employers’ recordkeeping requirements under the FLSA,” stated Mr. Harris. To achieve this transparency, the DOL’s Wage and Hour Division (WHD) proposes that employers perform a written analysis – applying the FLSA’s “economic realities” test – before declaring that a worker is an independent contractor; and that they disclose the analysis to the affected worker and keep a record of it in case of a WHD investigation. Because “plan/prevent/protect” is a department-wide initiative, OSHA will be considering similar rules.

Also, the WHD has launched a campaign called “We Can Help,” focused on the construction and other targeted industries “tailored to inform low wage, vulnerable workers of their rights and benefits, how to get help if they believe those rights are violated, and to assure them that their complaint is confidential.” A cynic might call this a snitch campaign.

These efforts, which Harris calls “regulatory innovations,” are part of a broader effort that includes “close cooperation with our partners in the…IRS…to address worker misclassification.” Before that chill runs all the way down your spine, there’s more good news. The DOL has also drafted legislation for Congress called the “Unemployment Compensation Integrity Act,” which contains provisions that would “enable states to retain a percentage of delinquent employer UI taxes.” This essentially provides states with an incentive to target misclassification as part of their tax compliance efforts.

Coming so closely on the heels of OSHA’s “administrative enhancements” and the EPA’s flawless rollout of the RRP Rule, this is not good news for contractors already dealing with additional compliance burdens (echoing the EPA’s cost estimates for the RRP Rule, Harris stated that compliance would be “simpler” under the DOL’s innovative new scheme). Of course employers – especially contractors – try to minimize their fixed costs, particularly in an economy that leaves no margin of error; and there will always be those who abuse the system. But this seems to punish the class for the behavior of a few students.

Harris attempts to quantify the scope of the misclassification problem, but his key allegations are so tempered with qualifications like “some employers,” “many workers,” “often exploited” and the like, that it’s questionable whether the problem truly warrants such an aggressive response from the DOL. Our cynic might imagine other motives for this, such as the pursuit of additional sources of revenue, the expansion of governmental control, and the fact that you can’t unionize independent contractors.

Talking About Hazards

One day a young man named Bill came by the offices of a cleaning & restoration contractor to apply for work. Tom, the general manager, was impressed with Bill’s carpet cleaning experience, and was glad to get his application. Bill said he didn’t have time to complete the application on the spot and asked if he could fill it out at home and bring it in later. They scheduled a full interview for the following morning. At the interview, Bill answered all the questions, demonstrating that he had sufficient knowledge to qualify for a position. Tom assigned him to work with the lead technician for two or three weeks to get on the job training. The reports back from the lead tech were positive – enough to put Bill on his own. Customers were delighted with Bill’s performance, overlooking the fact that he may have shown up a little late; but they praised him for his “great work.” Tom had one criticism, though, which was Bill’s productivity: If he was given a work order of four jobs, he might only complete two or three in a day.

During a temporary work slowdown, Tom sent his lead tech out on his own without a helper and assigned Bill to the office so he could see how successful the OTJ training had been. Tom and Bill met in the office and went back to the stockroom. Tom asked Bill to tell him what traffic lane cleaner was used for and what the dilution rate was. Bill picked up a bottle and held it in front of him for a long moment, all the while moving his lips slightly. Bill got it half right and missed the dilution ratio. Then Tom handed Bill a bottle of browning treatment and asked him what it was used for. Before he could be stopped, Bill opened the bottle and sniffed it. With his sinuses suddenly burned from the vapors, he abruptly dropped the bottle and ran to the bathroom to flush his sinuses out. Bill came out of the bathroom with his eyes watering, nose running and in obvious discomfort.

Afterwards, Tom asked Bill the obvious question: “Can you read?” He claimed that he could, but “not too well.” Tom asked him about his high school education and Bill produced a laminated miniature of his diploma out of his wallet. So Bill had been able to perform the correct steps in the spotting process, based on memorizing what he had seen others do; but when presented with an unfamiliar label his only recourse was his sense of smell. Even though Bill had graduated from a public high school, it is doubtful that he could read even at a 5th grade level. After further discussion, it was discovered that the application that Tom had received weeks earlier had actually been filled out by Bill’s wife.

Because Bill’s field performance was so good, Tom decided to keep him on the payroll, but only working under direct supervision. Tom went a step further and arranged for Bill to attend a remedial reading class, even allowing him to attend class while on the clock. But Bill never showed up for the first class, and never came back to work again.

This is an unfortunate story – for the employee, of course. He was a responsible person who cared about doing a good job for his customers. What employer doesn’t want people like that on his team? But it’s also unfortunate for the company, which learned that its hiring and training practices were inadequate… at least in this case.

You don’t know what you don’t know, so sometimes experience is the only teacher. Does Tom now make sure that every prospective employee can read before making a hiring decision? One would think so. But before that experience with Bill, why would he have thought about making sure that a job applicant isn’t functionally illiterate? What other possible negatives are you supposed to anticipate? This is why OSHA regulations are so dogmatic and absolute – they have to cover the unanticipated exceptions to the rule.

And that’s why OSHA’s Hazard Communication Standard (29 CFR 1910.1200) requires every employer to translate the information contained on the MSDS into any understandable format (which would have been the spoken word with Bill); and that employees are trained about the hazards they’re exposed to in the workplace… before they’re exposed.

In the case of browning treatment, the hazard identification for inhalation is “May cause irritation of the upper respiratory tract,” and the risk level is low. But what if it had been a highly toxic substance that Bill had sniffed? Inhaled substances enter the bloodstream by way of the lungs, and can have damaging effects on the liver, the kidneys or other organs. Acute effects are an obvious danger of course, but almost any substance is toxic at some concentration or dosage; so even lower doses of a moderately hazardous substance can be problematic if repeated exposure occurs over long periods of time. Hazardous substances aren’t just found in drums with diamond-shaped symbols – they include paints, solvents, fuels, and even dust.

This is why every employer must establish a written hazard communication program (HazCom) in all workplaces where their employees are exposed to hazardous chemicals. A HazCom program must include a list of all hazardous chemicals that are present in the workplace, the person who’s responsible for the program, where written information about safe handling procedures can be found, and a description of requirements and information about labels, MSDS’s and employee training.

Does your company have this?

Start All Over Again

As this is written, the country honors its soldiers who have died while serving in the military. It’s a hot, sunny day in Richmond Va, but the flag hanging over the front door undulates in a cooling breeze, rocking the flagpole in its metal wall mount. This flag flies every day of the year in memory of two citizen soldiers that fought in a war many years past, who were among a generation that is leaving us at a rate of over 1,800 a day.

The Greatest Generation, indeed. They lived through a time when one-quarter of the working population was unemployed, an entire region of the country suffered an ecological disaster caused by drought and land mismanagement, and the world was at war. Because today we know how it all turned out, it’s difficult to imagine the fear and uncertainty experienced at that time. Those fifteen long years of existential crisis shaped the modern character of a nation and provided lessons for future generations to learn.

In the past couple of years, while the country has suffered a serious recession, our industry has suffered a depression; construction-industry unemployment has exceeded that of the Great Depression. Environmental disasters like Katrina and the Gulf oil spill tax our resources, our country is engaged in two expensive wars, and our future is uncertain. So there are a few parallels.

For those of us who came of age during the Vietnam War, we know that bad times come and go just like good times. But in 2008 a twenty-five year period of robust economic growth and mild recessions came to an abrupt end, and the current mood is as close to the existential angst of the 30’s and 40’s as any we’ve seen in our lifetimes. Maybe that’s just because we have more to lose than we did back in our youthful days of massive social transformation and violent protest.

Certainly we’re exposed to more detailed information about what’s wrong in the world, at a greater speed than were our parents and grandparents. We have a far greater number of entertainment choices, which fragments our collective attention instead of focusing it. During the Great Depression the entire movie industry set about to improve the country’s morale, producing films that featured lighthearted stories – usually in an aspirational setting of affluence if not wealth. In the mid 30’s, Jerome Kern wrote a song called “Pick Yourself Up” for a Fred Astaire-Ginger Rogers film called “Swing Time.” The dancing was fabulous, of course, but the song’s upbeat melody and lyrics spoke to a generation having to cope with devastating financial burdens:

Nothing's impossible I have found,
For when my chin is on the ground,
I pick myself up,
Dust myself off,
Start all over again.

Don't lose your confidence if you slip,
Be grateful for a pleasant trip,
And pick yourself up,
Dust yourself off,
Start all over again.

Work like a soul inspired,
Till the battle of the day is won.
You may be sick and tired,
But you'll be a man, my son!

Will you remember the famous men,
Who had to fall to rise again?
So take a deep breath,
Pick yourself up,
Dust yourself off,
Start all over again.

“Be grateful for a pleasant trip.” A lot of fine music has been made since the 30’s and 40’s, but can you imagine this song being written and performed without irony in today’s culture? There was a shared innocence, an authenticity, in the expression of ideas and feelings back when most people didn’t enjoy the quantity of material pleasures that many take for granted today. There may be a correlation.

More to the point, though, can we view the challenges we face today with the historical memory of having overcome greater ones before? We should never forget the courage and optimism of the Greatest Generation, and strive to model the example they set. We would honor their memory every day if we did.

When Things Go Right

The fire spread so quickly that the men stopped their suppression efforts and called 911. It started when an employee for this medium-sized sawmill was welding on equipment inside the mill’s main processing building. He had followed normal procedures, including wetting down the area, but piles of sawdust and debris from the log debarking process – soaked with oil and grease leaked from equipment overhead – had caught fire nonetheless. Fires in mills happen all the time, but in this situation employees inadvertently dispersed the burning debris – spreading the fire up a cable chase, rapidly spreading it throughout the building.

The first fire engine arrived within six minutes of the 911 call. But by then the fire was so intense, with smoke billowing into the sky, that the firefighters called for air support and focused on keeping the flames from spreading to nearby log decks and stacks of finished lumber. Two air tankers bombed the main processing building with retardant, and a helicopter scooped water out of an adjacent lagoon to make water drops. The building was a total loss, a charred ruin of twisted metal that had collapsed into itself. Fortunately the rest of the facility was spared.

The site required extensive demolition and cleanup, of course, but large wood processing machinery also needed to be removed. Much of it was salvageable, so removal had to be accomplished without further damage in an environment where heavy debris had collapsed on and around it.

After weeks of negotiations with the insurer, the restoration contractor was finally able to start work. First, environmental hazards had to be assessed and mitigated before the demo work could start. Asbestos was found in one small room, which was quarantined and quickly cleaned by an abatement team. The nearby lagoon had to be protected from runoff generated when years of accumulated industrial sludge was powerwashed off the floors.

The greatest safety concerns were electrical hazards, fall hazards and line of fire hazards. While some elevated work could be performed from aerial lifts, much of the work required climbing on debris and equipment, and on upper-level decking.

Planning for Safe Work
First, the safety manager required written verification from the sawmill’s management that all equipment and building electrical had been de-energized. Lockout/tagout procedures were documented and reviewed with employees prior to beginning demolition. Hard hats, safety glasses, and gloves were a 100% personal protective equipment (PPE) requirement; and dust masks and hearing protection were recommended. Only trained employees were allowed to operate aerial equipment or work at elevations above 6 feet; and fall protection was 100% required at elevations above six feet. Also, all work above six feet had to be pre-planned and approved by company supervisors. Daily pre-work meetings were held, where all hazards were identified and recommended safe work procedures were reviewed with affected employees. Site-specific job orientation was required for all new employees, who were required to sign written documentation. Hot work permits were filled out and approved by company safety personnel prior to performing any spark-producing activity.

Most of the fall protection issues were caused by leading edge conditions and holes created after machinery had been craned out. In many of the cases the equipment was large (25 ft. x 15 ft., for example), projecting up through the second level of the building. Removing this equipment left holes in upper-level platforms; and no work can be performed within six feet of an edge or hole without a barrier or fall protection (and a good plan). When the company creates a hazard, it has a special responsibility to protect workers as well as extra liability in the event of an injury.

Obviously, fall protection PPE was in place while removing machinery that penetrated any elevated surfaces. There were plenty of large H-beams to tie off from, so the company used wire rope retractable fall protection. Afterwards, barriers were installed around every opening with 1½” dia. pipe welded six feet O.C. and 3/8” wire rope threaded through holes drilled at 21” and 42”. Caution flags were hung every two feet.

Line of fire hazards existed wherever gravity or the sudden release of tension could cause injury or death: Piles of interwoven steel had to be removed, and any time one piece is moved it can generate energy by falling or causing other pieces to fall. Total situational awareness is mandatory. Obviously, powered equipment was used wherever possible, but in the effort to minimize damage to salvageable machinery, hand work was necessary to cut the equipment free. On more than one occasion, the safety manager stopped work to require a written job hazard analysis before continuing. The priority given to safety on this project meant that every task was assessed and planned before action was taken, changing the protocol from thoughtless routine to thoughtful caution. Every day was the first day, an acknowledgement that hazards evolve; that unknowns exist.

This could only have happened in a restoration company with a strong commitment to safety rules and procedures. Management had an absolute commitment to a safe workplace. The crew was engaged during safety training, toolbox talks and daily hazard identification; and they were proactive whenever they saw unsafe activity.

There were only two near-misses and a cut requiring a Band-Aid… a complicated, high-risk demo job with zero OSHA recordable incidents. That didn’t happen by accident.

OSHA Update

On April 22, 2010, the same day that the EPA lead rules went into effect, assistant secretary of labor for OSHA, Dr. David Michaels, issued a memo to regional OSHA administrators titled “Administrative Enhancements to OSHA’s Penalty Policies.” Although the subject is serious, it can’t go unremarked that the term “administrative enhancements” sounds like ad-speak for a platonic marital aid… perhaps a gift of Post-It notes and a stapler to charm your wife off her feet?

All humor aside–seriously, all humor–this announcement is the culmination of a process that has repositioned OSHA from a compliance organization, or one focused on the carrot of helping companies comply with OSHA regulations, to an enforcement agency–one focused on using the stick of enhanced penalties to change employer behavior. Changing employer behavior is the focus because it is the employer that controls the workplace; and according to Dr. Michaels “American workers still face unacceptable hazards. More than 5,000 workers are killed on the job in America each year, more than 4 million are injured, and thousands more will become ill in later years from present occupational exposures.”

OSHA’s policy has been to consider several factors that can help an employer discount the nominal penalties if it is cited:

• Its history of violations
• Its good-faith efforts to implement an effective safety program
• Its “quick-fix” response to abate hazards found during an inspection, and
• Its size

These factors are given a different discount value, such as 10% for history and 15% for good-faith efforts. The discount for size varies according to how many employees a firm has, with the smallest category (1–25 employees) receiving the highest discount. This offers the greatest advantage to remodelers since the overwhelming majority of firms have fewer than 26 employees.

However, the new “administrative enhancements” change the way these discounts and other policies are to be implemented:

- The time frame for considering an employer’s history of violations will expand from three years to five.

- If an employer has any high-gravity serious, willful, repeat or failure-to-abate violations in this expanded five-year history, then a 10% penalty will be added.

- The time period for determining repeated violations also expands from three to five years.

- Violations will be graded according to their low to high severity, lesser or greater probability, and low to high gravity. The newly-coined Gravity-Based Penalty will determine fines that range from $3,000 to $7,000.

- The size discount has been reduced (the discount for small employers, with 1-25 employees, has been reduced from 60% to 40%).

- If an employer agrees to hire a third-party safety consultant, it’s eligible for a 20% penalty reduction.

- OSHA has changed the way it adds up multiple discounts. Previously, it would add up the percentage reductions and discount the penalty by the total percentage. Now, they will be applied serially (the percentage for each discount factor will be applied one at a time to a declining balance), resulting in a higher net penalty.

- More details can be found at http://osha.gov/dep/penalty-change-memo.pdf.

In reality, few remodeling firms are at risk of an OSHA inspection because most projects don’t rise above OSHA’s target threshold of $1 million, and many remodelers operate individually and hence aren’t viewed as employers. But a serious accident or fatality has a way of putting even a small company on OSHA’s radar.

It happens that the construction industry incurs the most fatalities of any industry in the private sector, and specialty trade contractors the most in the construction industry (the Bureau of Labor Statistics doesn’t provide a breakdown for remodeling contractors). According to OSHA, “Falls are the most frequent cause of fatalities at construction sites and annually account for one of every three construction-related deaths.” In light of OSHA’s new focus on the stick over the carrot, you should review your safety program; but especially so if you do any work requiring your employees (or subs) to perform elevated work.