A settlement (compromise) agreement is a legally binding agreement between a business and an employee under which the employee agrees to settle their potential claims and in return, the employer will agree to pay financial compensation. Sometimes the agreement will include other things of benefit to the employee, such as an agreed reference letter. Such payments can attract income tax or national insurance contributions – but they can also sometimes rightly be paid tax-free. How much an employee is offered in a settlement agreement will depend on the circumstances surrounding the settlement agreement. However, if an employee has:
Then the case will most likely settle for between one and four months’ salary plus notice pay.
However, if there is evidence of whistleblowing or discrimination, it could be more, and the two years’ service requirement is no longer relevant. As you can see, many factors play a role in determining how much a settlement agreement should be. In this post, we look at how much is the average settlement (compromise) agreement pay-out?
Although a settlement agreement can include much more than a financial payment, the money is bound to be an important question for almost anyone who is about to lose their job. There is no legal minimum for settlement agreement payments. However, an employee is likely to get financial compensation through a settlement compromise agreement if the employer is worried about the complications of not settling. There are maximum pay-outs, set by employment tribunals, especially for unfair dismissal claims.
Employers aren’t bound to use the maximum pay-outs, but they can use them as guidelines when negotiating settlement compromise agreements with employees. These maximum pay-outs don’t apply to certain claims, such as whistleblowing and discrimination claims.
In determining what monetary value is appropriate for a settlement agreement an employment lawyer will generally analyse a particular situation based upon two types of analysis:
The rough ‘rule of thumb’ that is generally used to determine the value of a settlement agreement (in respect of compensation for termination of employment) is two to three months’ gross salary. What you should receive in respect of your particular settlement agreement, based on your circumstances, will depend upon each individual situation.
Generally, Settlement agreements (or compromise agreements as they used to be called), usually involve a payment from the employer to the employee. Such payments can attract income tax or national insurance contributions – but they can also sometimes rightly be paid tax-free. The standard terms of the settlement agreement are the following:
Contact Our Settlement Agreement Solicitors to find out what should be included in your settlement agreement, or for further advice on Settlement Agreements. We welcome you to visit our contact us page or contact us directly by emailing firstname.lastname@example.org or giving our experts a call on 02079 036888.