Recruitment companies or agencies are external firms that specialise in leveraging professional networks to source suitable candidates for job vacancies on behalf of the businesses with whom they partner. 

Importance Of Risk Management In Recruitment Agencies

Even without the current economic headwinds, the nature of this fast-paced and competitive industry means recruiters and their agencies are forced to deliver at unprecedented speeds to meet clients’ ever-growing needs, whilst ensuring they remain compliant with evolving HRMC requirements.

Working at such a pace can increase both the likelihood and consequences of risk within any business, let alone for agencies whose risk management portfolio is inherently more complex given the nuances of the sector. 

In addition to industry-related risks, recruitment firms themselves are not immune to challenges surrounding employee engagement and retention, often referred to as “people risk”, or cyber-attacks. In fact, with recruiters working in such data-rich environments, holding sensitive information such as payment details for both individuals and corporations, the sector has become an attractive target for cybercriminals.

“Forewarned Is Forearmed”- Why The Right Risk Management Advice Is Crucial

When you’re aware of the risks you could face, you can ensure the right plans are in place to mitigate the negative impact. We believe effective risk management enables your business to make better decisions. The better you understand your risk environment, the better you can anticipate what’s coming around the next corner and create the ideal risk programme for your business, a prerequisite of sustainable growth.

Developing The Ideal Risk Programme – The Importance Of Insurance For Recruitment Agencies

What If…

… a data breach lands you in court? More than half of all cyber incidents start with employees, and the average breach costs £4 million.

… your client asks you to sign non-standard terms? Do the terms extend your liability beyond what is fair and reasonable? Has somebody checked the terms to ensure you have the adequate type and level of insurance in place? Do you have vicarious liability cover?

… HMRC deem you to be the fee payer? If HMRC come calling, are you confident that you could argue your case and importantly have the evidence to show the processes that have been followed? Do you have the means to pay the additional tax, interest and even a penalty? Did you know that each individual supplied could carry a tax risk to your business that could be as much as 25% of the gross day rate you have paid them? 

In Such Circumstances Would It Not Pay Dividends To Have Experts Fighting Your Corner Backed By High-Quality Insurance?

From business interruption to vicarious liability cover, finding the right protection for your business can become complex when accessing the breadth of your candidate portfolio. 

Key Insurance Considerations For Recruitment Businesses  

The recruitment industry comprises a broad range of businesses offering different services into different sectors. Businesses have various modes of working and the risk profile of each will differ depending on other considerations such as how their organisation is structured, the exact services they offer, how they contract with their clients and indeed the labour they supply, how they manage data and technology and the specific needs of the sectors they serve.

Detailed below are the more common types of insurance cover required by a recruitment business, and what they are designed to protect the business against:

Employers’ Liability For Recruitment Agencies

The definition of an employee is broad and includes both full and part time workers, apprentices, volunteers, self-employed contractors you engage, temporary workers, work experience candidates and interns. Employers’ liability insurance can pay the compensation amount and legal costs if an employee, or an ex-employee, claims compensation for a work-related illness or injury.

The Employers’ Liability Act (1969) states employers must be insured with employers’ liability insurance for a minimum of £5,000,000. Most insurers tend to offer as standard a minimum limit of indemnity of £10,000,000 in recognition of the upward inflationary pressure on compensation awards. Most policies tailored to the needs of recruitment businesses will automatically include this cover. 

Public Liability For Recruitment Agencies

Public liability insurance covers the recruitment business if the business receives a claim for compensation or is found liable for causing injury to a third party or for loss of or damage to third party property. This is commonly taken out by recruitment agencies and recruitment consultants to protect them when dealing with clients and members of the public.

One key consideration for recruitment businesses particularly those supplying temporary workers is to understand whether their contractual terms extend this liability to cover the actions of the temporary workers being supplied. If such cover is required, then your insurance provider should consult with insurers to ensure the cover is extended to provide the same. 

Limits of cover typically start from £1m and ordinarily, most businesses will purchase a maximum of £10,000,000. The limit required will quite often be detailed within your contracts with clients and will also be driven by the scope of services and liability accepted along with the specific sectors you serve.

It is also important to consider the geographical and jurisdictional scope of the cover required for businesses operating in international markets. If in doubt, seek advice from your insurance adviser.

Professional Indemnity Insurance

Professional indemnity insurance is an essential purchase for most businesses operating in the recruitment sector. This insurance protects against claims for third-party financial loss arising out of allegations of negligence, errors and/or omissions.  

Recruitment businesses need to be extremely conscious of the scope of the contract terms they agree and enter with clients, as this is a key factor in determining the scope and level of cover required in respect of their professional indemnity cover. Consideration needs to be made as to whether the terms of business are standard or non-standard terms and as a result whether the professional indemnity insurance needs to extend to include cover for vicarious liability.

It is important to consider also the geographical and jurisdictional scope of the cover required for those businesses operating in international markets. If in doubt, seek advice from your insurance adviser.

Cyber Liability & Data Risks Insurance 

As mentioned earlier, there is an increasing focus on cyber risk within the recruitment sector. Often, contracts put an onus on recruitment businesses to adequately protect the data they hold and the data they can access.

Businesses in the recruitment sector should have a keen focus on effective cyber risk management because the consequences of not doing so carries a great deal of regulatory, financial, operational and reputational risk. Policies available in the market can differ widely in terms of scope and coverage. Therefore, we recommend a thorough review of your requirements alongside the development of a risk management plan.

Additional Covers To Consider

Other insurances commonly required are:

  • Property and contents insurance (for those businesses with offices) 
  • Business interruption insurance (for those businesses with offices)
  • Damage to portable property insurance (cover typically for laptops and mobile phones)
  • Medical malpractice insurance (for those businesses placing temporary workers into the medical and care sector)
  • Management liability protection (covers exposures faced by directors, officers, and business entities)
  • Commercial motor insurance (for those businesses that own or lease company vehicles)

Importance Of Reading & Understanding Insurance Policies Before Prchasing

Making sense of ‘insurance jargon’ isn’t always easy, but the consequences of not fully understanding your policy can be the difference between your policy delivering and your claim getting paid or your policy becoming invalidated. If you are unsure about any aspect of your cover or believe you may not be able to comply with any of the policy terms and conditions, it is paramount to discuss this with your insurance adviser immediately to work on a resolution to avoid invalidating any potential claims if an issue were to arise. 

Finding The Right Insurance Programme For Your Recruitment Agency

Ensuring you have the right programme in place requires insight, experience and knowledge to ensure the assets in your business – including your people – are protected and your liabilities are ring-fenced to help you mitigate your risks. 

At Partners& we start by gaining a thorough understanding of your business, then we work with you to develop a proactive and innovative programme that’s fit for purpose and evolves as you do.

At a time when our clients are grappling with how to navigate market uncertainty, our aim is to help them to understand the risks they face and provide the support they need to overcome some of these challenges.

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