The 5 things we look for in a Settlement Agreement

Each year, we advise hundreds of employees on settlement agreements.  Here’s what we look for:

1. That you get what you are entitled to

When your employment ends, you are entitled to notice or a payment in lieu of notice.  You are also entitled to a payment in lieu of any holiday you have accrued but not yet taken.  Depending on the circumstances, you may be entitled to a bonus or a statutory redundancy payment.  The first thing we do is check that you are getting what you are entitled to, either under your contract or of employment or under legislation.

2. Maximise the ex gratia payment

In the settlement agreement, your employer will be asking you to waive any claim you may have against them.  They will usually therefore offer an ex gratia payment, which is an amount in addition to the amounts that you are legally entitled to.  The amount offered will vary depending on the circumstances.  For example, an employer will offer a higher amount as a way of rewarding a longer serving employee or because they are concerned that an employee may have valuable claims for unfair dismissal or discrimination.  Sometimes though, an employer will offer a settlement agreement to an employee with a short period of service where there is little risk of a claim.  In that case, the ex gratia payment is likely to be small.  We can advise you on an appropriate ex gratia payment and we are often able to increase the amount from the employer’s initial offer.  Sometimes we can negotiate a substantial increase.

3. That the payments are taxed correctly

The taxation of payments in a settlement agreement is a complex issue and could fill a blog all by itself.  Clearly you do not want to pay more tax than you need to.  An ex gratia payment is tax free up to £30,000 so we can help you make the most of that exemption.  It is equally important though that you do not pay less tax than you should.  The last thing you want is HMRC trying to recover more tax in future, by which time you may have already spent the payments.  If we think your employer is planning to deduct less tax than they should, we will flag that up.

4. Do you want to keep anything?

Usually you will be required to return your employer’s property when your employment ends.  However, sometimes an employer will allow you to keep certain items such as a mobile phone, a laptop or even a company car.  If you want to keep something, there is no harm in asking, since it may have more value to you than to your employer.

5. Get a reference

Legally, your employer will not have to give you a reference.  Contrary to what most employee’s believe, they can even give you a bad reference if it is factually true.  You can  therefore use this opportunity to negotiate a positive reference that can be included in the settlement agreement.

ACAS have a Code of Practice on settlement agreements which your employer should follow: Acas Code of Practice on settlement agreements | Acas

There are lots of reasons to use for advice on your settlement agreement: Employment settlement agreements | Employment Solicitors | Keelys LLP

If you have been offered a settlement agreement, please email it to employment@keelys.co.uk or call us on 01543 420000 and we will be happy to help you to negotiate the best terms possible.