Recruiter spoke with Sam Cox, Commercial Director at recruitment agency insurance expert Qdos, who highlighted the importance of gaining visibility of risk: key to mitigating threats, ensuring compliance, choosing the right insurance policies and growth.
 
When it comes to risk and compliance, what’s changed for recruiters in recent years?

Recruitment is an ever-evolving sector, but in recent years, challenges have ranged from new data privacy regulations (GDPR) and changes in employment and tax laws to prominent cyber attacks and tech advancements. At the same time, all businesses are dealing with the effects of Brexit and Covid-19 – agencies really do have a lot on their plate.

What should recruiters be thinking about in terms of risk management?

The fact of the matter is that there are ever-present and underlying commercial risks inherent to placing workers – and recruitment agencies need to be nimble and proactive when it comes to managing these risks. 

For instance, recruiters may face basic claims for property damage or injury from seemingly innocuous circumstances and, when it comes to professional errors and omissions, they could easily face a claim if they fail to properly check a worker’s right to work, their qualifications or experience. 

For recruiters providing basic talent search and directly placing workers, exposure may be minimal. But it increases sharply for firms in the contract chain – those placing temp workers via umbrella or payroll companies, personal service companies (PSCs) or otherwise on a self-employed basis through an intermediary.

And it’s this contract chain structure, along with the complex terms of engagement, that make the recruitment sector fairly unique from a risk perspective.

Why is ‘the contract’ so important when focusing on risk and compliance?
 
Under a Contract of Service (ie. an employment contract), if an employee makes a mistake when carrying out their work, the employer is primarily responsible for the losses of a third party (known as Vicarious Liability).

But where a contractual chain includes intermediaries – a recruitment agent, a payroll company or the worker’s own PSC – there can be ambiguity over which party should be deemed the employer in the event of a claim, and therefore carry Vicarious Liability for the actions of workers.

The first step towards mitigating risks around contracts is to ensure that the hirer’s standard terms are in order. In some cases, however, hirers expect recruiters to accept their own contract terms. 

Negotiating this can be tricky, but in our experience, a sensible discussion usually yields positive results and ensures all parties know their exposure and insurance requirements from the word go. Where non-standard terms are agreed, it is vital that recruiters review and maintain detailed records of any additional exposure that may be presented.

Reviewing your standard terms and the portfolio of non-standard terms that have been agreed can seem long and complicated – but the reality is, it’s important and can prove fruitful. 

A recruiter who has protected themselves contractually and is aware and cautious of any deviation from standard terms, can expect to see significant premium savings compared to a firm who has blindly signed up to third-party terms.  

Sure, it might not be something to look forward to, but in many cases, it’ll be worth your while! 

So, if contracts are all in order, does this completely mitigate the risk for recruiters?

It plays a role and should be an important aspect of your risk mitigation strategy, but it doesn’t remove the risk altogether. Particularly when the recruiter is placing contract staff – either self-employed or umbrella – they should make sure they are covered for Vicarious Liability claims on a contingent basis.

Even with contract terms in place, recruiters can find themselves drawn into spurious claims or claims where there’s ambiguity over the responsible party.

It’s also worth noting that the strength of the contractual terms in respect of Vicarious Liability won’t mitigate the risk of claims resulting from a recruiter’s own errors or omissions. So cover for such incidents should always be held.

Generally speaking, which insurance policies should a recruiter consider?

Recruitment agencies are businesses, so protecting your basic assets – arranging suitable cover for buildings, contents, vehicles and the like – is a solid starting point.

Where insurance becomes more complex for recruiters is in Professional Indemnity, Public Liability and Employers’ Liability insurances. These so-called ‘core’ covers often represent a recruitment business’s largest premium spend within their insurance portfolios.

All businesses typically require these policies in some form, but in the recruitment sector, they can effectively form part of the service model. Put differently, they require special attention and ideally should be discussed with an expert.

What are these ‘core’ covers for?

The top priority for recruitment agencies is usually Professional Indemnity Insurance. This covers claims relating to errors or omissions of a professional nature, caused by the policyholder, which result in a financial loss to a third party.

Even when the right measures are in place, mistakes can happen, and accusations of professional negligence made, unfairly or wrongly. 

Public Liability covers claims resulting from physical damage or personal injury caused by the policyholder. With recruiters visiting clients or vetting candidates, they’re at inherent risk of this type of claim.

The last of the three core policies – Employers’ Liability – covers claims from employees who have suffered physical injury when carrying out their work. This policy is a legal requirement for almost all businesses with employees. 

All of the above policies will cover both the cost of legal representation in handling such claims and the resulting damages in the event that you’re held liable.

Should workers carry their own insurance?

Where a worker is genuinely self-employed – whether by way of a PSC or as a sole trader –carrying insurance is always recommended.

Self-employed workers, by definition, shouldn’t work under the Supervision, Direction or Control (SDC) of any other party and, as such, will carry a degree of risk in their own right. So recruiters should ensure they have suitable measures in place to check and monitor the cover held by their workers.

Are there any other factors recruiters need to consider?

There are some areas that make a recruiter’s exposure to risk more complex, so it’s always advisable to speak with a specialist broker to explore coverage options. 

Some examples of this would include where a recruiter is placing workers offshore, when dealing with overseas clients (particularly in North America) and whether the recruiter is providing a genuine managed service.

Qdos Contractor have been protecting flexible working for over 30 years. As part of a global speciality insurer, Qdos provide award-winning peace of mind to both agency and worker. To arrange a quote or to discuss the insurance your recruitment agency needs, please visit the Qdos website.