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Ball And Chain

Outsourcing your HR? What to look out for

A review of employment tribunal indemnity insurance services

As a small business owner, I totally understand that you simply do not have the time, desire or the right expertise to manage your HR correctly.

It's nothing to be ashamed of, it's not why you got into business.

Not keeping on top of HR will lead to:-

  • Confusion over employee terms and conditions
  • Missed opportunities to manage up or out of the business
  • Overpaying staff
  • Higher absence levels
  • Problematic disciplinary situations

Any one of these will cost your business in time you can ill afford to lose and cash that will make a nasty dent in your annual profits.

It's no surprise then that many SME’s have taken to outsourcing their HR to help them with compliance and to resolve issues.

One of the biggest draws can be providers offering employment tribunal indemnity insurance. With employees being much more switched on about employment rights this sounds good? Let's look a little deeper first.


This article is designed to highlight the pros and cons of providers who offer indemnity from tribunal claims.

The motivation behind this article is to try and prevent just one business owner from making a very costly decision, as there is not a month that has gone by in the last 5 years that I have not heard another woeful tale of business owners being enticed into HR service arrangements that are simply inappropriate and costly to exit.

The latest being a very small business owner, lured into paying £360 per month for 5 years on the basis of a problem the HR providers said they could fix. When it was deemed “not covered by the indemnity insurance” the business owner tried to cancel the contract. The cancellation fee quoted was £14,000. That business is facing the prospect of paying £360 per month for another 4.5 years for a service they have no faith in.

I think this is downright wrong.

Another provider has been delivering a passive service to a business owner who had not realised that the contract of 3 years had automatically rolled over for another 3 years because they missed giving notice on the contract 6 months before the contract expiry date was due. (And you thought tracking employment dates was hard). The Contract cancellation terms were £7,000.

Who wants to retain customers just because a piece of paper says so? Will that business owner say good things about the HR provider who shackled them into staying on their contract? No, they will tell at least 10 people how badly they have been treated.

Stories like this give outsourced HR a bad reputation.


When you consider other types of insurance like your buildings cover at home, just because you have the cover doesn't mean you can stop maintaining the building does it?


If a leak develops in the roof you fix it to prevent a bigger problem and you'll call in a roofing expert to resolve it as you spot it developing.

You might not have another roof leak for 5 years, but you know it makes sense to maintain the roof instead of wait until the problem is so big that you need a new roof, because the insurers may well not pay out if you haven't maintained your building properly.

The same goes with HR.

Any smart business owner will get advice if they sense a problem is developing and providing they are using a reputable HR advisor, guiding them on the policies and their options, they take the necessary steps to avoid the problem becoming any bigger.

It's no different to fixing the roof leak at home.

Often those HR providers who sell you employment tribunal indemnity insurance are focussing on your FEARS.

Fears that your roof will cave in.

That despite doing everything by the book, your employee will take you to court and win thousands in compensation.

A little tip to remember is that FEARS are False Expectations Appearing Real.

Decisions made based on fear are rarely good ones.


Employment tribunal indemnity insurance will require you to follow the service providers instructions to the letter; which can lead to them playing it very safe leaving you feeling frustrated and lacking any commercial options to consider.

These products often come with monthly retainer contracts that have long tie-in periods, 3 years upwards seems to be the norm - who wants to be tied into a contract for 3 years these days?

Imagine being tied to a mobile phone contract for more than 3 years.

Many people wouldn't dream of it.

Small business owners often get lured to a local employment law update seminar where they will be filled with horror stories of the costs of tribunal claims, many stories of which are simply the exception rather than the rule.

Big payouts are headline hitting but they are few and far between.

What they won't always highlight are the lengthy contract tie-in periods, the 6 month notice period or the automatic rolling over of the contract, the rigid day-rate options for accessing face to face support or what is not included in the scope of their services such as a complex business transfer or negotiating Settlement Agreement terms.

They won't explain how much time and distress it will cost you to go through a tribunal claim - or that there is no insurance for that (in most cases).

I am not saying these providers aren't appropriate for some businesses, they will suit you if:-

  • 24/7 telephone support matters to you;
  • you are happy to relinquish your ability to make decisions and follow their instructions to the letter;
  • you believe their fear stories could happen to you;
  • you don't mind speaking to different people each time you call;
  • you are happy with fixed tie-in periods of 3 years plus.

If you would prefer:-

  • Monday to Friday access to support during core daytime working hours;
  • Exploring your options, based on your attitude to risk and then making your own decisions about what course of action to take;
  • To think you are switched on enough not to make catastrophic employment decisions which will cost you hundreds of thousands of pounds;
  • To develop relationships with 1 or 2 HR professionals who understand you and your business;
  • To work either totally flexibly on-demand or for a maximum of a 12 month tie-in period

Then using either a boutique HR business or an independent HR consultant may be more your cup of tea.

If you are going to go with an insurance backed provider:-

  • Read the contract small print, or get someone to do it for you
  • Be prepared to run everything past them to ensure your cover is continuing
  • Consider asking if local HR companies or independent HR Consultants can work in tandem with the insurance providers - HR Savvy does as will others.

I have been asked on a number of occasions if we provide employment tribunal indemnity insurance. We do not and it is not being considered.

I am of the opinion that it stifles commercial decision-making and shackles HR professionals and business owners into risk averse practices.

HR needs to be worked at, maintained and adapted as the business grows and changes. HR as an afterthought is often where problems occur.

Tracey Murphy

Tracy Green
Tracey Murphy
Managing Director
01772 600228
Ready for a conversation?
Published on: 1st May 2017
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