The Indemnity, and What It Is Worth
An indemnity is a promise to pay, worth exactly what the company making it can pay when the claim arrives.
The service agreement with the provider
The employment contract with the person
Who the employer is in law
What you are buying with the fee
YoursThe provider'sCrosses the twoNeither contract
Four matters, and no share: what any one agreement covers differs by agreement. One crosses both, and the handoff is where these arrangements fail. The distinction everything else in this collection rests on.
What one buyer's indemnity actually reached, read against the exposures it was bought for
An employment claim brought by the person against the provider as employer
The provider'sLands as: A defence run and a settlement paid by the provider, which is the claim the indemnity was drafted around
What you can do: Confirm the notice period for telling them, because late notice is the commonest way an indemnity is lost
A misclassification finding that the person should have been your own employee
Crosses the twoLands as: An assessment against the provider as employer, and a permanent establishment question against you in the same country
What you can do: Read whether the indemnity reaches the second half at all, and assume it does not unless it says so
Corporate tax assessed on your own activity in that country
YoursLands as: A liability against your company, which the provider's employment of the person does not touch
What you can do: Take your own advice on presence before the second hire, not from the provider's sales material
Penalties for a payroll filing the provider made late
The provider'sLands as: Interest and penalties against the provider, who is the filer of record
What you can do: Ask for evidence of filing on a schedule, so a late filing is visible before the penalty is
The provider becoming unable to pay what it has promised
Neither contractLands as: No bearer anywhere: an indemnity from a company that has stopped trading is a sentence
What you can do: Check which legal entity gives the indemnity, and whether that entity holds any assets
Five exposures, and the indemnity was written for the first. One buyer's own reading of its own agreement; what any indemnity covers, and whether it is enforceable, differs by drafting and by jurisdiction.
An indemnity is a promise to pay. It is worth what the company making it can pay on the day the claim arrives, which is a question about that company rather than about the drafting.
The contractual distinction in “The Indemnity, and What It Is Worth” also matters when buying workforce software. For teams researching 7 minute rule payroll, read the product details should be evaluated against a named operational decision, clear ownership, export requirements and a tested exit process rather than treated as a substitute for the employment agreement.
Most buyers read the scope and stop. The scope is the easier half.
For a separate perspective on “The Indemnity, and What It Is Worth”, consult the IMF labour-market research. Compare it with the actual contract, country and operating process rather than using a general resource as a local conclusion.
What it is usually offered for
Employment claims brought against the provider, and misclassification findings. Those are the two risks the product is sold against, and the indemnity is drafted around them.
Both are real. Both are also the risks the provider is best placed to manage, which is why it can afford to stand behind them.
Which entity gives it
Read the signature block. The indemnity may come from the contracting entity, from a holding company, or from a local subsidiary with no assets beyond a bank account.
An indemnity from an entity with nothing in it is a sentence rather than a protection. This is the single check most worth doing and the one most often skipped, because it requires looking outside the document.
What it excludes
Anything caused by your own instructions, your own information, or your own breach. That exclusion is reasonable and it is also wide.
A misclassification finding that followed from how your manager actually treated the person may land squarely inside it. The exclusion does not have to be unfair to be the reason you recover nothing.
The notice requirement
Nearly every indemnity requires you to tell the provider within a stated period, often short, and to let them conduct the defence.
Miss the period and the indemnity can fail entirely. Put the obligation somewhere your legal team will see it, because the person who first hears about a claim is usually not the person who read the contract.
Conduct of the defence
Giving the provider control of the defence is standard and usually sensible, since they know the jurisdiction. It also means decisions about settlement, publicity and admission are not yours.
Where your own reputation in that market matters, ask for a consent requirement on settlement. It is sometimes granted and rarely offered.
The cap sitting over it
An indemnity subject to the general liability cap is capped. Many buyers assume indemnities sit outside the cap; in a good number of agreements they do not.
Check which. If the indemnity is capped at three months' fees and the exposure is a year's salary plus penalties, you have bought a gesture.
Insurance behind it
Some providers carry insurance against exactly these exposures and will say so. That is materially better than a promise on its own.
Ask for the certificate, the limit and the period, and ask whether the cover responds to the indemnity or only to the provider's own loss. Those are different things.
What it does not reach
Your own tax position in that country. Your own regulatory obligations. Anything about data where you are the controller. The cost of the disruption rather than the liability itself.
None of those are failures of the product. They are the parts of the exposure that were always yours and were never being sold.
Reading it alongside the cap
The indemnity says what is covered. The cap says how much. The exclusions say when neither applies. Those three clauses have to be read together and in that order:
The indemnity says what is covered. The exclusions say when it is not. The cap says how much is recoverable when it is. Read on its own, each of the three is reassuring.
Read separately, each looks reassuring. Read together they often describe a much narrower promise than the summary page suggested.
Negotiating it
Smaller buyers assume there is nothing to negotiate. There frequently is, particularly on the entity giving the indemnity, on carving indemnities out of the cap, and on the notice period.
Ask at the point of signature, where you have the only leverage you will ever have. Nothing moves at renewal.
Keeping it current
Indemnities are given by an entity at a moment. Entities are restructured, providers are acquired, and the company behind the promise may not be the one you checked.
A short annual look at who you are actually contracting with is proportionate for an arrangement that employs people on your behalf.
A change of ownership is also the moment to re-read the indemnity itself, because terms are frequently harmonised across a group after an acquisition.
What the indemnity cannot settle
Whether you will ever be able to use it. Enforcing an indemnity against a foreign counterparty, in a dispute about a jurisdiction neither of you is in, is slow, expensive and uncertain in ways no clause describes.
That is not an argument against having one. It is an argument for reading the indemnity as the second line of defence rather than the first, and for spending more attention on not creating the exposure than on being compensated for it.