Better Ways to Improve Worker Health and Safety in Small to Midsize Businesses

What role can tax incentives, subsidies and grant programs can play in a business?

• By Bernard Fontaine
• Jan 05, 2023

The strengthening U.S. economy in recent years has nurtured many opportunities for ambitious entrepreneurs based on the rising number of small to midsize enterprises (SMEs). In 2022, the number of small businesses in the U.S. reached 33.2 million, making up nearly all (99.9 percent) of all U.S. businesses. The increase in the number of small businesses in the U.S. is representative of sustained growth as it marks a 2.2 percent increase from the previous year and an overall growth of 12.2 percent from 2017 to 2022. The numbers exclude the self-employed workers who work as delivery and transport drivers, seasonal, temporary, contract and casual work, street vendors, private home healthcare workers, legal and financial services, etc. Midsized businesses typically have less than 500 workers with revenues between $10 million and $1 billion.

Did you know the average small business employs about 11 workers? These numbers fluctuate widely based on the economy, geographic location and business. The average woman-owned business employs about eight workers compared to 12 for businesses run by men. The breakdown was similar for minority-owned businesses compared to non-minority-owned ones, with the former employing eight workers and about 11.5 for the latter, according to U.S. Small Business Administration (SBA) statistics. Prevention of occupational injury and illness is often difficult in SMEs because employers have limited resources, fail to understand the risk, cannot hire staff devoted to these activities and often lack the knowledge of available resources. So why doesn’t the federal and state government provide a financial incentive to improve the work environment and reduce the risk? By reinvesting in SMEs to protect workers, the outcome could be far more prosperous for business, society and the economy.

There are tax incentives, subsidies and grant programs available for businesses. These financial incentives encourage the creation and preservation of family-wage jobs, especially in areas with high unemployment. But what about using these instruments to help business owners improve their workplace to reduce occupational injury and illness and lower operating costs? Tax incentives are codified exemptions, credits, deductions or exclusions that reduce a company's tax liability to the state or federal government in exchange for making certain choices (e.g., reduce its environmental footprint, increase health benefits, support minorities, etc.). Business owners can then use that funds to hire consultants to inspect job sites, develop written programs, conduct exposure risk assessments and audits, provide training, purchase new equipment and invest in other aspects for business growth and improvement. Tax incentives are available for business energy investments and relief from major disasters but not for occupational safety and health.

Tax credits for SMEs can help federal, state and local governments make headway in meeting their specific strategic goals. As you'll see in the examples below, tax incentives serve a range of purposes, such as increasing jobs or offering a boost for certain industries with limited resources. So while the businesses that benefit from the incentive receive financial help, tax incentives in turn stimulate the economy by way of increasing businesses, jobs and investments and reduce risk and limit liability. The only tax credits offered for SMEs include electric and electric vehicles, worker retention in target markets, disabled access, research and development and healthcare.

Currently, there are a number of federal government tax incentives in the form of business tax credits or tax breaks for small business. Two notable examples include the Small Business Health Care Tax Credit and the Work Opportunity Tax Credit. A particularly lucrative federal tax credit is the Small Business Health Care Tax Credit, which is available to eligible small employers that provide healthcare coverage to their employees. In general, this small-business incentive benefits companies that have fewer than 25 full-time equivalent employees, pay average annual wages per FTE of less than $56,000 for tax year 2021 and pay at least half of employee health insurance premiums. The federal Work Opportunity Tax Credit applies when you hire people from certain groups, such as veterans, ex-felons or food stamp recipients. There is no limit on the number of qualified employees for companies to claim and receive a credit.¹

A grant is a designated amount of money given by an organization for a designated purpose. Small-business grants can come from municipal, state or federal governments and corporations. Grants are not loans. Financial grants to small businesses do not have to be repaid. Through a grant, a small business can secure funding to advance a specific program or initiative.

The SBA tends to focus its grants on nonprofits, educational institutions and state and local governments. However, opportunities for federal small-business grants may exist if your business is involved in research and development or wants to expand training for employees. But what if these grants could be used to help protect workers? These grants can help cover employee training expenses, often for both new and existing employees. Each training program is different—some will reimburse companies for a percentage of their trainer fees while others will cover space rental expenses. A few programs would cover the wages of the employees being trained to do their job safely. Besides training, the funding could be used to design facilities with proper ventilation, construct written programs and procedures, develop emergency response plans and purchase machinery with controls.

Some local municipalities offer grants to help businesses grow programs that can benefit their region. Grants may be targeted to help a region increase its appeal by encouraging certain types of businesses. There can be grants for startups, grants to improve environmental practices or grants for small businesses trying to expand into a particular field such as optics, renewable energy, or manufacturing. The National Institute for Occupational Safety and Health (NIOSH) provides Training Project Grants (TPGs) focused on Occupational Safety and Health (OSH) training to meet the needs of targeted populations like firefighters, commercial fishermen and OSH interns.

Motivated by a desire to give back to the community or help a SME grow in a way that highlights its own mission or marketing message, large corporations can be a source for SME grants. For example, a women's clothing company committed to sustainability could offer a grant to SMEs to pursue activities that bolster women and girls in environmental justice issues. Grants are available for forward-thinking ideas or businesses owned by veterans, among many others. Outside of grants, tax credits for SMEs do exist. These programs can ease the tax burden or provide financial assistance in exchange for helping a city, county, or state achieve its goals of stimulating its economy and improving the lives of residents. Other tax deductions help with business expenses but not improving workplaces and reducing the risk of occupational health and safety hazards.

Cases of flash floods, bushfires and hurricanes are becoming increasingly common and unpredictable. These occurrences, alongside rising temperatures and pollution, are evidence of a need for urgency in addressing climate change. As a result, the state and federal governments are actively promoting sustainable development by setting stringent targets. One method encourages sustainable development by offering tax incentives to SMEs. While initial investments in green energy may be costly, they can save a business thousands of dollars in the long run. Some economic benefits of embracing sustainable business practices include lowering utility bills, making extra money by selling Energy Reduction Credits (ERCs) to high emitters and enjoying tax benefits and grants from federal and state governments. Policy-makers have two broad types of instruments available for changing consumption and production habits in society. They can use traditional regulatory approaches (sometimes referred to as command-and-control approaches) that set specific standards across polluters, or they can use economic incentives or market-based policies that rely on market forces to correct for producer and consumer behavior.

A subsidy is an incentive given by the government to individuals or businesses in the form of cash, grants or tax breaks that improve the supply of certain goods and services. With subsidies, consumers are able to access cheaper products and commodities. Markets that have positive externalities, which are extra benefits to society, tend to be favored in policy to provide a greater supply of a good or service. Several types of subsidies exist including production, consumption, export and employment. Of most importance are the production and employment subsidies. The production subsidy encourages the manufacture of a product. In order to increase production output, the federal government compensates SMEs for some of its parts in order to lessen their expenses while increasing their output. The employment subsidy is an incentive given by the federal government to companies to enable them to provide more job opportunities. Well, why is all of this information important?

There were 5,190 fatal work injuries recorded in the United States in 2021 alone, an 8.9-percent increase from 4,764 in 2020, according to the U.S. Bureau of Labor Statistics (BLS). This was the key finding from the 2021 Census of Fatal Occupational Injuries. The 3.6 fatal occupational injury rate in 2021 represents the highest annual rate since 2016. In essence, a worker died every 101 minutes from a work-related injury (2021).² Transportation and material moving workers experienced the highest number of fatalities while transportation had the most frequent fatalities.

Private industry employers reported 2.6 million nonfatal workplace injuries and illnesses in 2021, a decrease of 1.8 percent from 2020. Retail trade, transportation and warehousing had the largest increases in cases, according to BLS. Despite a decrease in cases, the healthcare and social assistance sector had the highest rate of respiratory illnesses in 2021. Retail trade had the next highest rate of respiratory illnesses at 37.5 cases per 10,000 workers, a 91.0 percent increase from 2020 due largely to the pandemic when the incidence rate was 19.6 cases.³

Data from the National Council on Compensation Insurance’s (NCCI) Workers’ Compensation Statistical Plan database reflect claims on workers’ compensation insurance policies in states where NCCI collects such data. The aggregate of all statistical data was valued 30 months after the inception date of the policy. The average cost for all claims for the combined period of 2019-2020 was $41,353. According to NCCI data, the costliest lost-time workers’ compensation claims by injury resulted from a motor vehicle crash, averaging $85,311 per claim in 2019 and 2020. Other causes with above-average costs were burns ($54,173), falls or slips ($48,575) and caught-by incidents ($44,588).⁴

The total cost of work injuries in 2020 was $163.9 billion. This includes wage and productivity losses of $44.8 billion, medical expenses of $34.9 billion and administrative costs of $61.0 billion. The total loss includes $12.8 billion for time lost by workers other than those with disabling injuries who are directly or indirectly involved in injuries, and the cost of time required to investigate injuries, write up injury reports and so forth. Other losses also include damage to motor vehicles in work-related injuries of $4.3 billion and $6.2 billion, respectfully.

Moreover, the National Safety Council (NSC) reported that 99,000,000 days were lost in 2020 as a result of injuries and days lost from injuries that occurred in previous years. Days lost due to injuries alone in 2020 totaled 65,000,000. This estimate includes the actual time lost during the year from disabling injuries but excludes time lost on the day of the injury, time required for further medical treatment or check-ups following the injured person’s return to work. Fatalities are included at an average loss of 150 days per case, and permanent impairments are included as actual days lost plus an allowance for lost efficiency resulting from the impairment. An additional 34,000,000 days were lost in 2020 due to permanently disabling injuries that occurred in prior years. NSC estimates 50,000,000 additional days will be lost in future years due to on-the-job deaths and permanently disabling injuries that occurred in 2020.⁵

Most everyone knows that federal and some state OSHA programs offer no-cost and confidential OSH services to SMEs. Consultation services are separate from enforcement and do not result in penalties or citations. Consultants from state agencies or universities work with employers to identify workplace hazards, provide advice for compliance with OSHA standards and assist in establishing and improving safety and health programs. Consultations are primarily targeted at SMEs where employers can find out about potential hazards at their workplace, improve on existing programs and even qualify for a one-year exemption from routine OSHA inspections. Unfortunately, due to limited resources and funding, these consultations may take time to schedule or may be limited in focus based on a specific request by the employer. Many state and federal programs are underfunded and under-resourced to provide services to SMEs that need help.

The same concerns also apply to workers’ compensation insurers who provide loss control support to their insurers. Many are driven to identify potential areas of loss to renew or underwrite the business rather than seek to identify OSH hazards and risks that affect their business. They may not have the financial resources built into the policy premium to provide any support other than conducting an annual survey for the underwriter. Many loss control personnel are not trained to properly evaluate occupational health exposure based on training or education. Some written policies provide limitations, exceptions or exclusions in their policy for risks like asbestos. Only a recommendation may be provided to the SME without regulatory compliance requirement to act unless the risk is tied to a policy renewal or potential claim.

For example, military vehicles were dipped in an outdoor unlined pit of methylene chloride. In past years, the loss control representative failed to act. The solvent was used for paint stripping, metal cleaning and degreasing of the vehicle body before repainting. Exposed workers along the assembly line were at risk of developing cancer or contracting other adverse health effects on the heart, central nervous system and liver, and skin or eye irritation. Exposure is known to occur through inhalation, skin absorption or direct contact with the skin. OSHA regulates worker exposure via 29 CFR 1910.1052. The SME was underwritten based on a special request from the insurance broker based on business volume to cover any financial loss from worker and public health exposure and/or pollution into the soil and groundwater. Hence, the loss control representative was told to look the other away. The SME was aware of the danger but lacked the resources to comply with the OSHA standard, make engineering and administrative improvements, or provide respirators and clothing or environmental controls to prevent a release.

By using tax incentives, subsidies and grant programs, the SME would have had the opportunity to implement a change management strategy at the organizational level to evaluate the risk and develop an effective workplace health program to reduce or remove the workplace hazard, build a properly designed facility to prevent an environmental catastrophe from a chemical spill or release and reduce public exposure from solvent evaporation; alert workers about the health hazard and the various controls including respirators, personal protective clothing and equipment; undergo initial and periodic exposure assessment, medical surveillance and biological monitoring; and post warnings to alert unauthorized persons about the hazardous work area.

Any of these instruments could be used to increase understanding of workplace hazards, and remedies will put facility managers and business owners in a better position to comply with federal and state safety and health requirements and become more effective at their jobs while protecting the public and the environment. Management experts believe that an SME with well-managed safety and health programs enjoys better overall profitability, increased human performance and productivity and limits the liability and risk of catastrophic occurrence that could be devasting to their business. Exemplary workplace safety and health programs are "good business sense" that also makes financial sense because it will allow employers to learn first-hand that accident prevention is far lower than the cost of accidents, improve the bottom line by lowering injury and illness rates, decreasing workers' compensation costs, reducing lost workdays and limiting equipment damage and product losses. For SMEs, the cost-benefit and business value to use these funds outweigh the cost of injury or illness and property loss. It also builds worker morale, brand, reputation and image for the SME as a great place to work.

The European Union Strategy 2007-12 on OSH recognized the need to use economic incentives to motivate enterprises to apply good work practices. The European Agency for Safety and Health at Work (EU-OSHA) contributed to the meeting by providing information on the types of economic incentives that are most likely to succeed. Their research shows that external economic incentives can motivate further investments in prevention in all organizations and thus lead to lower injury and illness rates. The primary target audience is organizations that can provide economic incentives to improve OSH like insurance companies, social partners or governmental institutions. These organizations are regarded as important intermediaries to stimulate further efforts in OSH in their cooperating enterprises, e.g. insureds. Therefore, a network of such organizations should be established to form an expert group, which supports SMEs with advice and support that help promote the anticipated results.⁶

Leigh looked at an OSHA publication on employer size and occupational injuries and illnesses. Twenty-eight large industries were selected which contained information on injury and illness rates for all eight categories of firm sizes. The injury and illness information were matched to data on the percent of production workers, weekly earnings and weekly hours in these industries. After controlling for gender, earnings, hours and percent production workers, as well as idiosyncratic effects of the particular industries, the evidence suggested that very small firms (1 to 19 employees) and very large firms (1,000 employees or more) had the fewest injuries and illnesses whereas medium-sized firms (20 to 999 employees) had the most.⁷

How do we know if any of these initiatives work? Six case studies published by EU-OSHA yielded quantitative indicators for positive findings on working conditions in the participating companies:

• The German butchery sector saw a 25 percent drop in accidents after the introduction of the incentive scheme in 2001.
• The Finnish agricultural sector saw the accident rate drop by more than 10 percent.
• A German health insurance incentive scheme for sick pay and absenteeism decreased significantly when enterprises introduced a modern health management system.
• Polish enterprises with a funded OSH management system had 70 percent fewer mishaps while lowering their insurance premiums and 50 percent fewer workers labored in a hazardous work environment.
• The Italian Workers’ Compensation authority subsidized bank credits to stimulate OSH investments in SMEs, resulting in 13-25 percent fewer mishaps than comparable enterprises.
• The Dutch subsidy program for investments in new OSH-friendly machinery and equipment led to better working conditions in 76 percent of enterprises. (Forty percent of employers said that the new equipment was highly beneficial and 36 percent said that it was reasonably beneficial).

The majority of businesses in the U.S. are SMEs. According to the U.S. Chamber of Commerce, nearly 99.9 percent of businesses in the country are small businesses. This means that small and midsize businesses are responsible for a vast majority of employment, products and services, making them a core component of the national and global economy. In 1999, NIOSH published the document “Identifying High-Risk Small Business Industries - Basis for Preventing Occupational Injury, Illness, and Fatality.” In this report, 253 small business industries were identified with data from the BLS for the years 1994 to 1995.⁸

Collectively, these industries represent four million workplaces and more than 30 million workers, or roughly one-third of all employees in private industry. Occupational injury, illness and fatality data were available for 105 of these industries. From the data for these industries, the top 25 percent (n=26) were ranked according to their injury, illness and fatality experience. A combined risk index of occupational injury, illness and fatality was used to rank these small business enterprises. The highest-ranked small business industries with injuries and illness include logging (SIC 241), cut stone and stone products (SIC 328), trucking terminal facilities (SIC 423), roofing, siding, and sheet metal work (SIC 176), camps and recreational vehicle parks (SIC 703, landscape and horticultural services (SIC 708), animal and marine fats and oils (SIC 2077), concrete, gypsum and plastic products (SIC 327) and taxicabs (SIC 412).

This information presented can be leveraged by government regulators and agencies, politicians, SMEs, community, labor officials, OSH practitioners and other stakeholders to target prevention activities for the higher-risk industries with the greatest need. It would complement the services offered by consultants, insurers and government agencies. Change management extends beyond SMEs to other stakeholders responsible for organizational change by directing and redirecting the necessary resources. By providing federal and state tax incentives, subsidies and grants to SMEs, the cost-benefit of OSH services and funding to make improvements would be far more beneficial to society and the economy than the continual payout for direct and indirect expenses for occupational injury, illness or a fatality.