How much could I receive in a Settlement Agreement?

1. Salary

You should be paid for your salary up to and including the termination date. Salary will be paid to you less tax and national insurance deductions. Your pay slips can be used to check that your salary information is correct.

2. Notice pay

You should check your notice entitlement. You will need to know your start date (i.e. the first day of employment) and calculate your length of service you have (i.e. 3 years and 4 months will mean 3 complete years’ service). You should then work out your statutory minimum notice entitlement.

The statutory position is as follows:-

• One week’s notice if employed between one month and 2 years
• One week’s notice for each year if employed between 2 and 12 years
• 12 weeks’ notice if employed for 12 years or more

Your contract of employment will set out your contractual entitlement. This may be more than your statutory minimum entitlement, in which case, the contractual notice will apply.

Your employer could ask you to work your notice period or agree to pay you in lieu of all or part of your notice. Notice pay will be subject to tax and national insurance deductions.

3. Holiday pay

On termination, you are entitled to payment in respect of any accrued but outstanding holiday. This payment will be subject to tax and national insurance deductions.

The minimum statutory entitlement is 5.6 weeks a year (i.e. 28 days) which is inclusive of bank holidays. You should check your contract of employment to see if your contractual entitlement is more than the statutory position.

You may wish to contact HR/check any online HR portals to see how many holiday days you have remaining.

If you leave employment part way through a holiday year, holiday entitlement is calculated on a pro-rata basis. Please see the link to the calculator on Gov.uk.

4. Compensation payment

The amount of a compensation payment varies depending on your situation i.e. whether you are settling a potential employment tribunal claim; a grievance or are being offered a settlement agreement as an alternative to a disciplinary procedure.

Compensation payments are tax free up to £30,000 under the tax legislation.

We can advise you on the compensation payment offered to you and whether we believe that this is reasonable when taking into account your circumstances.

For example, in a situation where an employer has offered a settlement agreement as an alternative to commencing a performance related process (i.e. due to poor performance of the employee who has over 2 years’ service), the compensation payment should reflect the fact that the employer would otherwise spend significant time and resources in carrying out a fair performance related process, in order to avoid a potential employment tribunal claim being pursued by the employee. Such process would involve at least 2 formal warnings and a performance improvement plan which would likely last for several months. The employee could use this as an argument to ask for an increased compensation payment.

5. Benefits

You should be paid your usual benefits up to and including the termination date.

Normally, settlement agreements waive all rights to benefits after the termination date. If it has been agreed that certain benefits will continue to apply after the termination date, these will need to be expressly set out in the agreement.

6. Other payments

The settlement agreement could provide further payments in exchange for you entering into new restrictive covenants (i.e. post termination restrictions that are not already set out in your contract of employment) or for non-disclosure obligations.