Settlement Agreement Frequently Asked Questions

We are sure you’ll have a lot of questions if your employment has come to an end and you are looking for a Settlement Agreement. Please read through our FAQs below or contact us for discuss your individual situation.

What is a Settlement Agreement?

A settlement agreement is a formal written agreement between an employer and an employee detailing the terms upon which an employee exits their employment. Typically this will be used to agree on a sum of money paid to an employee when their employment comes to an end.

Do I need a Settlement Agreement?

Settlement agreements are not mandatory, and there is no obligation for an employer to provide one. They do, however, have many benefits for both the employer and the employee. It is in the employer's interest to ask you to sign a Settlement Agreement, as you are agreeing not to bring any further financial claims on them. It is in your interest to get a Settlement Agreement to ensure you receive a fair settlement at the end of your employment. Settlement agreements are the only legally binding way to prevent a claim in tribunal proceedings.

What is a reasonable Settlement Agreement?

A reasonable Settlement Agreement will vary depending on your individual circumstances. The sum of money paid to you may take into consideration factors such as: Loss of earnings, or other benefits you are giving up, the length of your employment, the length of your notice period plus any un-taken holiday. It may even be possible to factor in how difficult it will be for you to find another job when negotiating a settlement figure.

Do I need a solicitor for my Settlement Agreement?

In order to make a Settlement Agreement legally binding, it is important to seek advice from a trustworthy Settlement Agreement Solicitor. This means that the employer is legally obliged to pay the figure agreed upon, and the employee has no way to come back and claim unfair dismissal. The significant benefit of using a Settlement Agreement Solicitor is that they will offer their expert advice on the amount you have been offered and negotiate on your behalf to get the very best deal for you.

Do you pay tax on settlement agreements?

Generally speaking, you do not pay tax on a Settlement Agreement.

However, the compensation payment may be made up of some taxable elements such as holiday pay or notice pay. Anything classed as 'ex gratia' for example; statutory redundancy pay is not taxable. If you are fortunate enough to receive an ex gratia payment over £30,000 the amount above £30,000 will be taxable at your usual rate of tax.

Does a settlement agreement need to be witnessed?

It is not a legal requirement for a Settlement Agreement to be witnessed, though some employers may request to have a witness.

What happens if I refuse to sign a Settlement Agreement?

If you or your Solicitor don't feel that the fee or the terms outlined in your settlement agreement aren't adequate, then you are within your rights to reject the offer and enter into negotiations. This is where a specialist Settlement Agreement solicitor will be able to support you, negotiate on your behalf and help to get the very best outcome from the end of your employment. You should never feel pressured into agreeing on your exit package or signing anything before you feel ready to do so. Make sure you take enough time to make an informed decision.

Does the Settlement Agreement need to be signed before I leave my job?

No, a Settlement Agreement can be signed during the employment, at the time of leaving or after the job has terminated. It is sometimes more helpful to negotiate a claim after a dismissal.

When will I receive my Settlement Agreement Figure?

There is no set time to receive your Settlement Agreement Figure.

The most common terms are within 28 days of the employee receiving a signed and certified document or on the next payroll date.

The timescales for payment should be set out in the Settlement Agreement, and if you aren't happy with what has been suggested, we can negotiate.

Why is my Settlement Agreement marked "without prejudice'?

This is a legal term (which is widely misused) used to indicate that an offer cannot now be put in front of a Tribunal. It also means that the offer can be withdrawn until negotiations are concluded.

Therefore, nothing is finalised until both parties have signed the final document.