However onerous and time-consuming, regulations can actually make good business sense, especially when they lead to greater efficiencies. Keri Allan looks into the business case for health and safety legislation.

Ensuring that a workplace’s safety policy is properly implemented and adhered to can save a business money, which accountants can understand from a financial perspective. Breaches of regulations can have a serious impact on the bottom line but the full extent may not be apparent. That’s why Peter Brightman, head of syndicate finance at Asta, believes it is essential to carry out cost benefit analysis of these types of non-financial topics. As with a lot of regulatory requirements, the best course of action is to be proactive rather than reactive.

It is therefore part of an accountant’s role to identify and inform colleagues or clients of the financial risks posed by their actions, or inactions, with regards to lapses in health and safety implementation. In common with accountancy, health and safety is regulated by legislation, which is often not fully understood by the wider business or senior management. This can make it one of the hardest areas of the business to get right, as many senior managers don’t consider it of high importance or simply presume it’s someone else’s responsibility.

Consequently, the execution of health and safety policies can be a good indicator of general managerial effectiveness. “Rarely has there been a company that shows excellence in health and safety and poor performance elsewhere,” says Jan Mirkowski, international services director at health safety consultancy Arinite. “The converse is also true; companies that hit the headlines over health and safety breaches are more than likely poorly run and financed.”

Making your business case

So how can accountants make the business case for health and safety standards and best practice? In many cases it’s much more effective to describe the consequences of regulatory non-compliance as opposed to the benefits of adherence. This is because it brings health and safety’s importance into sharp focus for senior management.

They begin to see that weak health and safety standards can have a devastating effect, not only on any individuals involved in a workplace accident, but also the business itself. Just a few years ago it was unusual for businesses to receive a fine of more than £1m relating to a workplace fatality, says Mirkowski. But since new sentencing guidelines were introduced in 2018, he’s never seen a company fined less than £1m for such an offence. “One company was fined something like six years’ turnover so they folded. It just wasn’t worth continuing,” he says.

Consequences of non-compliance

Many senior managers may not know that the legal consequences of not complying with relevant health and safety legislation exposes them to personal legal vulnerability, adds Mark Worsnop, a health and safety adviser at employment law specialist Howarths. Many directors are unaware of the very large level of fines that can be imposed on both organisations and individuals, as well as the number of custodial sentences imposed on directors and senior managers.

The maximum penalty that can be imposed on the director relates to the statutory penalty for the underlying offence committed by the corporate body. For nearly all health and safety offences, this maximum penalty is an unlimited fine and two years’ imprisonment. Where there are breaches to statutory regulations, or an inability to provide evidence of compliance with approved codes of practice, then enforcement action would be taken by the enforcing authority. “The consequences of receiving an enforcement notice could cause severe business disruption and damage to reputation,” says Worsnop. “Additionally, there’s the potential for substantial ‘fees for intervention’ related to any Health and Safety Executive (HSE) involvement.”

The insurance imperative

It’s important that senior management is aware that fines and penalties are not tax-deductible expenses for the business and are not insurable. However, they also need to factor in how their health and safety practices could affect the company’s insurance costs. A component used in calculating an insurance premium is how much of a risk a business poses to the insurer.

Companies with poor or non-existent risk controls in place can pose a higher risk and as such can be charged a higher premium or can have stipulations placed upon them to improve their controls. Equally, having accidents can push up your premium the following year, so it stands to reason that the better a business approaches risk, the better its chances of getting a fairer representation in front of insurers, notes Adrian Robinson, managing director of PIB Risk Management.

Carrot and stick

The harsh reality of non-compliance and insurance costs is often necessary to ensure senior management engagement with health and safety. However, it is equally important for accountants to show the financial benefits that can come from regulatory adherence and best practice. As Alan Williams, director of HWB Accountants, points out, better health and safety practices significantly reduce the risk of accidents, in turn minimising the time lost to sick leave and costs relating to employee replacement or cover during the time they are away from work.

Furthermore, improved working conditions will reduce time lost to smaller, but still costly, workplace health issues such as back and muscle pain – which, according to Asta syndicate finance manager Riad Alam, is one of the top reasons for employee absence.

Reputational damage

A safe work environment is likely to help workplace productivity and staff morale, giving the potential for higher profits from existing activities. But bad health and safety workplace practices can affect a business’s bottom line in many ways. For example, consider how much reputational damage can affect profits. Businesses have a responsibility to workers and to those that may be affected by the work they do.

Demonstrating disregard for this can have a wide-reaching impact. If employees don’t feel that you care about them, then why should they care about you? Being an attractive workplace can have financial benefits including increased staff retention and reduced recruitment costs. “What is your reputation worth? It is well recognised that bad news spreads twice as fast as good news and your reputation can mean the difference between winning or losing a contract. Hitting the press for health and safety failings can be costly,” warns Robinson.

A manager who shows genuine interest in employees’ health and safety will win the respect of their staff and be appreciated for showing a level of concern for staff wellbeing. On its own, good health and safety standards won’t ensure staff loyalty and longevity to an employer, but lack of them may well lead to disgruntlement and complaints.

“If you adhere to best practice, reputational benefits are likely to follow,” says Akash Ruparelia, a financial analyst at Johnson & Johnson. “An example would be my employer – the company always aims to meet best practice and this, along with the commitments it makes to all stakeholders in its credo, is a reason why I decided to join them.”

Above and beyond

Regulation is there to set a minimum standard. If a business can see that health and safety is not just a compliance burden, it can set itself apart from the competition. Simply put, businesses that choose to go above and beyond the health and safety conditions expected are likely to see more rewards, points out Paul Watson, director of Passman Leonard.

Accountants should advise colleagues and clients that health and safety is more than just a checklist they have to meet, as showing a strong commitment to the spirit of the regulations can attract new clients and staff. Aim for the business to work towards external accreditation or awards like ISO 540001, the British Safety Council’s Five Star Occupational Health and Safety Audit, and the Royal Society for the Prevention of Accidents’ Health and Safety Awards.

Only good can come from a business commitment to health and safety and accountants clearly have a role to play in presenting the case for adherence to the highest standards from a financial point of view. You don’t have to stop at managing finances – offer your knowledge in order to help the wider management of the business and care of staff, which will in turn reap financial rewards. “Accountants are seen as trusted advisors and its essential that we lead by example,” says Watson. “We’re in an important position to guide our colleagues and clients to ensure staff are being properly looked after.”

Better safe than sorry

It’s important to ensure that your business has a strong health and safety management system. This may not be the responsibility of an accountancy firm or finance department, but it is an important thing to mention when putting forward the business case for robust health and safety procedures. Not only will such a system give the wider business oversight of health and safety standards, it simplifies reporting, which in turn reduces time and money spent on administration.

“The directors I’ve met were almost always very nice people, but they can be slightly detached from the day-today workings of the company and aren’t aware of all potential health and safety concerns,” notes Jan Mirkowski. “My best piece of advice for any company is to ensure you have a dashboard of key performance indicators.” And don’t just report accident statistics, he adds; look at a battery of other measures related to health and safety: staff training, risk assessments, fire drills, and then find a way to score them in a manner the wider business can understand.

Health and safety reporting obligations

Accountants need to be aware of, should they have responsibility for completing the reporting, compliance with RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013), says Mark Worsnop. “Reporting is undertaken online via the Incident Centre of certain injuries, illnesses or as a result of a workplace accident were an employee is absent from work for seven days including non-working days, or they are unable to carry out their normal job function.

In certain circumstances you would need to report immediately by the quickest method, usually by phone, for a death within the workplace or where a member of the public is taken directly to hospital,” he explains. “It should also be ensured that all workplace accidents, however minor, are entered into an accident book, which should be made readily available within the workplace.”

To ensure that reoccurrence is minimised, a suitable accident investigation should be undertaken to identify how the accident occurred and what measures need to be implemented. “To assist with the defence of potential future claims, the accident investigation should be documented and stored with the accident book entry and any RIDDOR reporting information in a secure location.”

Originally published in Economia, June 2019.