Strategy & Operations » Governance » HSE compliance key to a healthy board agenda

IN OCTOBER, the Health and Safety Executive (HSE) – the health and safety regulator – was given the power to levy charges for any work it does for companies. If the HSE carries out any inspection of premises, possibly as part of a random inspection programme, and finds a ‘material breach’ of health and safety regulation, it is now able to levy a charge, known as a Fee for Intervention (FFI). However, we’re very aware that many businesses are unprepared for the potential financial impact and business risk this represents.

So why should FDs be concerned? The HSE will levy an hourly charge, currently set at £124/hour, for time spent investigating the breach and any administrative and enforcement work performed as a consequence. Many companies are unaware of the risks they now face, while others have taken the view that this constitutes a form of tax.

What’s more, it’s widely understood that the government anticipates an annual income of around £40m from FFI, and that the HSE will be able to retain a percentage of all money raised by the levy, with the balance going to HM Treasury.

Budget planning for the year ahead will therefore require extra thought about health and safety compliance. FFI is effectively a fine as the cost must be covered by the organisation – it’s not possible to claim for FFI under any workplace insurance policies. If FDs are aware that their company has a track record of health and safety breaches, it would be wise to protect themselves against any financial shocks and build potential FFI costs into your budget.

Beyond the initial cost

Of course, it’s not just about costs. While a company does have the right to appeal against an FFI charge, a failure to appeal then confirms the acceptance of the charge. If a subsequent injury claim arises, that charge could be used as an indication of blame against the company.

It’s also important to bear in mind that if the business has multiple premises and the HSE finds a material breach at one location, other locations will also be at risk. Seeking legal advice sooner rather than later may help FDs to be better prepared for any FFIs they suspect could be on their way.

For businesses with decentralised operations, another risk lies in one location receiving an FFI charge and failing to inform the centre. The HSE’s arrival at several of the decentralised operations may actually be the factor that alerts the organisation’s management to the risks they might be running. If a business operates on this basis, FDs should reassure themselves their operational reporting controls would alert them to this situation early on, before the arrival of any bills.

It’s likely that certain contract commissioners will also begin enquiring about FFI charges when they invite tenders. The disclosure of FFI charges could therefore be another reason why companies need to take an active interest in how they are responding to any FFI situations.

But what are the legal implications of this? There are other health and safety and workplace compensation issues of which finance directors ought to be particularly aware in the coming year. Apart from FFI, April is likely to see the implementation of the Legal Aid Sentencing and Punishment of Offenders Act, incorporating major changes into the way personal injury claims will be processed. This, together with other government measures, will implement much of the so-called Jackson reforms intended to reduce the impact of legal costs. Some aspects of the Act should lead to financial benefits, for example the implementation of fixed legal costs, a ban on referral fees and the removal of success fees currently payable by companies and their insurers.

Other measures may cause concern, however, including a planned increase in the levels of personal injury general damages by up to 20%. Companies that successfully defend a claim made against them will also no longer be able to recover their legal costs. As with all legal changes, the net effect won’t be known for some time.

Finance directors can’t afford to regard health and safety performance as just an operational issue. The costs of health and safety failure can be high, and if a company is charged with corporate manslaughter, for example, the resulting impact on the business could be devastating. Conducting a financial analysis of costs incurred by companies through health and safety failures will often reveal the potential for savings, and the implementation of simple, yet effective, risk management can be easily achieved.

Times have changed; finance directors can save themselves from wasting unnecessary resource and be a step ahead in 2013. If it hasn’t been done already, health and safety priorities need to be brought back into budgets, and certainly back onto the boardroom agenda.

Jim Wilkes is senior casualty underwriter at Zurich Insurance