How much money do you receive in a Settlement Agreement

The amount of money you receive will depend upon the individual circumstance of your case but is usually split into two parts - compensation and contractual.  

This is often a separate amount of money paid as compensation for loss of employment. This is sometimes called a termination payment. 

 

Whilst there is no fixed amount for a compensation payment the amount offered by an employer depends upon a number of factors, such as the reason for termination of employment, eg whether termination is due to redundancy, an employment dispute or because of illness. 

 

Other matters often influencing the amount of compensation offered include length of service, seniority and whether you may have a valid legal claim. 

 

In redundancy situations employers will sometimes offer an enhanced redundancy package to save the time and expense of having to go through a full redundancy process. 

 

Commonly termination payments tend to range from the equivalent of one to three months’ gross salary, although very senior executives can expect to receive between six and twelve months’ salary. 

 

The first £30,000.00 of a termination payment can be paid free of tax and NI deductions – anything over £30,000.00 is taxed as usual. 

 

 

Unless the dismissal is for gross misconduct (in which case the employer will dismiss without notice) you are entitled to notice pay or pay in lieu of notice (PILON). Your contract should specify what your notice period is but if it doesn’t then the statutory notice period will apply. 

 

You are entitled to be paid your salary, together with payment for any accrued but untaken holidays up to and including the date of termination of employment. 

 

Again, unless the dismissal is by reason of gross misconduct you will receive all contractual benefits up to and including the date of termination of employment.  

This might include, for example, private health insurance, pension contributions or a company car allowance/ use of the company car. 

 

All of these payments are subject to tax and national insurance deductions in the usual way as they are contractual benefits. 

 

In order for a Settlement Agreement to be legally binding an employee must receive independent legal advice from a suitably qualified legal adviser, usually a solicitor. 

 

It is usual for an employer to make a contribution towards an employee’s legal fees and most employers will offer £500.00 + VAT although if, for example, a settlement agreement is complex the fees can be higher.