What goes into a settlement agreement payment

Start with what you're owed anyway

A settlement payment often bundles together money you'd be entitled to whatever happened. List these first, so you can see what the offer really adds:

• salary up to your leaving date, and any bonus or commission already earned
• holiday built up and not taken
• notice pay, worked or paid in lieu
• statutory redundancy pay, or more under your employer's scheme, if your role is redundant

Then the extra

Anything on top is usually a compensation payment for giving up your right to bring claims. There's no set amount. It tends to reflect how strong a potential claim would be, your length of service and pay, how quickly you're likely to find work, and how much both sides want to avoid a dispute.

Legal fees

A settlement agreement only binds once you've had advice from an independent adviser. Employers usually contribute to the cost, paid direct to the adviser, often a few hundred pounds plus VAT. It's worth agreeing the amount with the rest of the terms.

How each part is taxed

Salary, bonus, holiday pay and notice pay are taxed as earnings. Redundancy pay and compensation for loss of employment can be free of tax up to £30,000 in total, less any post-employment notice pay. Anything above £30,000 is taxed.

The other terms

Money isn't the only thing to agree. Check the reference wording, how your leaving is announced, confidentiality, any restrictions on future work, and what happens to your pension, car, phone or other benefits.