Financial implications of settlement agreements

If you have been offered a Settlement Agreement then you will be likely to benefit financially. However, there are certain financial implications that you should be aware of.

What is a Settlement Agreement?

Formerly known as a Compromise Agreement, a Settlement Agreement is a legally binding contract which can be used to bring to an end an employment relationship on agreed terms. It can act as an alternative to employment tribunals when a dispute arises and a claim is likely to be made against an employer.

What are the financial implications?

Payments that are included in a Settlement Agreement that are under the value of £30,000 are often exempt from tax and National Insurance contributions. However, anything above this limit would only be exempt from National Insurance contributions and not tax.

Aside from a termination payment, other payments including for unpaid wages, commissions, bonuses and holiday may also have to be paid to the employee. Tax and National Insurance will usually have to be paid for these types of payments.

As an employee, if you are offered a Settlement Agreement then you are required to obtain legal advice on the terms and effect of the Settlement Agreement before agreeing and more often than not your employer will agree to contribute towards your fees. A legal professional will also be able to help you review the agreement and advise you as to whether there is any room for negotiations – which could result in a larger award for you.

Here at Rollingsons, our experienced employment law solicitors can advise you on the terms and effect of the Settlement Agreement, the tax implications and whether or not you may be able to attempt to negotiate a higher payment.

To arrange a complimentary telephone consultation, please contact us online or call 020 7611 4848.