A little extra care

By Jim Tennent

Published:

DUE diligence has become commonplace in modern business as society has become more litigious.

There is no doubt that its increased prominence is beneficial because it means that companies rigorously employ best practice, and standards of service and provision have risen as a result.

However, organisations need to ensure that they apply it across the board if they want to prevent themselves from being held accountable for any potential liability.

Organisations ought to be aware that they should employ employee benefits due diligence to re-evaluate packages which are already in place, and that failure to do otherwise could cost businesses dear.

It’s important to review existing pensions and ancillary benefits schemes, too.

Often, these plans are overlooked – they are already in place, so businesses just assume that they are fine.

Just because there have been no problems to date does not mean that there might not be a time bomb in the schemes.

A relatively small amount of time and effort can help save a company’s reputation and stability by eliminating the potential for embarrassing and costly mistakes.

For instance, while carrying out employee benefits due diligence for a potential client, we discovered that the terms and conditions of their death-in-service insurance policy had not been reconciled with the occupations of a number of their staff.

It turned out that 39 workers were not covered because their roles were considered to be a hazardous occupation – a fact they had not picked up on when the policy was taken out.

Had the existing plan not been subject to a due diligence review and remained in place, our client would have carried a potential liability of more than £1.5million.

Companies should beware of simply renewing a policy without supplying accurate, up-to-date information.

Circumstances can change in business incredibly quickly and it’s vital that you keep on top of these adjustments. One small administrative error could prove to be very expensive if it goes unchecked.

During another due diligence exercise where the target company operated a death-in-service scheme on a “tiered” basis dependent on employment category, we discovered, by cross-referencing employee benefits data held by the insurer with employees’ actual entitlement under their contracts of employment, that the majority of an entire department were covered for only three times’ salary instead of six times. This error led to the company being potentially liable for the balance, which equated to a sum of £540,000.

By taking a little extra care and making every effort possible to eliminate slip-ups or oversights that may affect existing benefits schemes, companies can concentrate on developing their core businesses without fear of litigation or damage to their reputation.

Jim Tennent is managing director at Kudos Independent Financial Services