The extra money will be ploughed into the helpline and advice service provided by the Advisory, Conciliation and Arbitration Service (ACAS). The FPB is also urging small businesses to protect themselves by putting in place the correct management practices, using its new Employment Guide for 2008, and by taking advantage of its legal helpline.

The government funding is part of a package designed to simplify the dispute resolution process and save businesses over £175 million a year. It comes following research, carried out by the Employment Tribunal Service, which showed that the number of tribunal claims increased sharply last year.

"Over the past year, the FPB's members have experienced increasing problems with tribunal claims and threats of being taken to employment tribunals," said the FPB's Senior Member Services Representative, Philip Moody. "Many business owners struggle to balance running their businesses with the correct implementation of employment rules and regulations."

He added: "The FPB is always on hand to help them through this minefield, offering assistance from employment consultants – free to members – and legal expenses insurance (including cover for employment tribunal awards) of up to £825,000. In addition, the FPB's Employment Guide has been fully updated and rewritten for 2008 to cover new and upcoming changes to the law."

During 2007, there was a total of 132,577 employment tribunal claims – a leap of more than 15% from 2006. The biggest increases came from equal pay claims, which, with 44,013 claims, rose by a massive 154.9%. Sex discrimination cases virtually doubled, from 14,250 claims in 2006 to 28,153 over the last year. The number of claims for unfair dismissal went up also.

In addition, 30% of all calls received by the FPB's legal helpline in December were related to employee conduct and discipline – an increase from the same period in 2006. In January 2008, this fell to 25%, but the issue remained the most pressing concern for business owners who contacted the FPB. The number of calls related to redundancy, contractual disputes and employee absence has gone up also.

"When we laid off staff, we had to take time away from running the business to make sure we got the process right. It worried us to death," said FPB member David Wright, of Wright's menswear retailer in Whittlesey, Peterborough. "But the FPB's helpline gives you peace of mind; sometimes, it confirms what you thought in the first place, but it is good to know you can get expert guidance so easily and for free."

In a statement, the Department for Business, Enterprise and Regulatory Reform (BERR) said that ACAS would launch pilot programmes over the next year, focusing on reconciling disputes that look set to become tribunal claims. The service should be rolled out across the UK in 2009.