The risks of diversification

This is a guest blog contribution by Peter Stoll, Director, Marsh Commercial (REC business partner)

Recruiters supplying into different trade sectors have a better chance of surviving the effects of COVID-19 on the economy. Some sectors like pharmaceutical, health and social care or logistics may now look attractive to recruiters who have not previously had a presence in these sectors.

In the coming months as the government promotes greater housebuilding and major infrastructure programmes, recruiters will be looking to claim their share of the recovery and the Chancellor has promised to boost prospects for jobs to prevent a major recession.

What could this mean for recruiters regarding the additional risk or costs involved in entering these potentially crowded sectors?

It is important that recruiters have people who understand the specific sectors and their prospective hirers' requirements, because a wrong hire can be financially expensive for all parties. Professional indemnity claims could rise, should there be insufficient checks on candidates in the rush to meet demand.

Entering into new sectors will likely bring additional insurance risks, such as drivers’ negligence in the logistics sector, or medical malpractice liability for medical / health and social care. Additional covers may be required for specific sectors like rail work with HS2 about to be launched in the near future as this cover may not be provided for within your current policy and can prove expensive.

It is particularly important to discuss the cover and cost with your broker and insurer, to avoid future claims being declined. Also, additional costs of cover could eat into any profit margins, making the expansion into new sectors uneconomical.

What changes should you make your broker aware of?

• If you are moving from permanent only placements to temporary placements. What turnover is likely to be achieved in the next 12 months and what part of that is paid in wages to the contractor? Most policies for permanent placement agencies will exclude losses caused by temps supplied, so it’s important to advise your broker of this change.
• New terms and conditions that govern the supply of the workers. Are they your standard REC terms and conditions, or the hirers? If the latter, then check carefully if the hirer makes any stipulation about who may be held responsible for any future claims. Also is there any specific limit of indemnity, or even a specific type of cover needed such as drivers negligence, medical malpractice, offshore liability or rail safety critical cover?
• If you are planning to supply workers overseas, and you are hoping to open an office overseas.You will need to fully understand any insurance requirements for that territory, as it may be a legal requirement to buy the insurance in that particular country.

The most important thing is to allow enough time for yourselves and your broker to work out any changes to cover and any additional costs so you can factor these into your plans.

What about IR35?

Finally, IR35 hasn’t gone away but is simply on hold until next April, so check carefully the terms and conditions for Personal Service Companies being supplied into sectors such as technology or engineering. It is all too easy to sign up for onerous terms, which could leave you exposed to either potential tax liabilities or statements of work, which require a wider cover.

This is a marketing communication.