Whether you’re an employee or employer this section is packed full of information and resources about settlement agreements and related employment law issues.
Our panel solicitors have helped us produce a completely free pack of sample letters for employers, covering different situations that sometimes result in a settlement agreement offer. Employers just need to select the template letter that fits their situation. Sign-up for our employment law newsletter to get your free templates.
ACAS has published its guide (88 pages) containing its model settlement agreement. The ACAS model agreement is pretty basic and you will need to spend time inserting information and deciding what to delete or amend. This agreement may not suitable for your situation or if you are unsure of about completing this type of legal document.
ACAS’ states that its documentation is “for guidance only and should not be regarded as an authoritative statement of the law, which can only be made by reference to the particular circumstances which apply. It may, therefore, be wise to seek legal advice”. Calculate your statutory redundancy pay entitlement
A house is only worth what someone is prepared to pay for it. Similarly, a settlement will only be as much as your employer is prepared to pay. There is no simple or easy ‘calculator’ your can use. Every case is different!
We’ve put together these questions to help focus your mind on what might be achievable.
- What is your length of service? This is a key factor in calculating statutory redundancy pay or a Basic Award for Unfair Dismissal.
- What is your entitlement to notice?
- What is your employer’s reason for ending your employment? If your employer has grounds to dismiss you fairly and lawfully your negotiating position will be weaker than if your employer’s reasons are pretty flimsy.
- How long will it take you to find another job?
- What employment claims do you have?
- How strong are they?
- What’s their realistic value?
- What does a settlement agreement offer that a tribunal would not? For example, is your employer offering to a positive reference as part of the settlement. A tribunal does not have the power to make your employer do that.
- If you turn the offer down what is likely to happen?
- Are you prepared to accept the consequences if no settlement is reached?
- Do you have access to a solicitor to help you with a claim?
- Can you afford to go to an employment tribunal?
- Are you prepared to go all the way to a final tribunal hearing? It can be stressful.
- What are the likely legal costs and risks associated with bringing your employment claims?
- How do the risks and costs compare to the potential gains of winning your claim?
- How much do you value a quick and settlement with speedy payment versus a long drawn out claim?
Tax Free Termination Payments
- Payments up to £30,000 pursuant to Sections 401 – 404A ITEPA
- This allowance includes statutory redundancy payments.
- Contractual redundancy payments also fall under £30,000 tax free amount:
- Mairs v Haughey (66TC273)
- HMRC EIM00515.
- ITEPA 2003 section 415 – benefits in kind included in the termination payment are valued at the higher of their money’s worth (section 62) or cash equivalent.
Contribution to Legal Fees
- Employer’s contributions are not taxable subject to compliance with section 413 ITEPA
Counselling and other outplacement
- Not taxable subject to Section 310 ITEPA
Disability and death Payments
Injury to feelings
- Moorthy v Revenue and Customs – taxation of injury to feelings awards on termination
- Walker v Adams (Inspector of Taxes)  STC 269)
- Vento v Chief Constable of West Yorkshire Police  ECA 1871
- Oti-Obihara v CRC  UKFTT 568
- Earnings / Entitlements for past and future service – Section 62 ITEPA
- HMRC EIM13765
- Contractual PILON
- Holiday Pay
Payments in Lieu of Notice (‘PILON’)
- Contractual payments in lieu are taxable – Section 62 ITEPA (link above).
- Customary / Auto PILON – Cerberus Software Ltd v Rowley  EWCA Civ 78
- Tax bulletin no. 63 – Inland Revenue
Restrictive Covenants – Tax on monies received for agreeing to these:
- These may be taxable – see EIM15400 setting out HMRC’s view
- ITEPA, section 393 to section 399
IMPORTANT: The information in this section is for guidance only and does not amount to legal advice. You should seek advice from you solicitor on tax issues and liabilities specific to your situation.
Settlements and Confidentiality – NHS Guidance (2013)