What is a settlement agreement?

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What is a settlement agreement?

A settlement agreement is a legally binding contract which will be created after your employment ends. It will happen after the termination of your employment. In return for your settlement agreement, you will be agreeing not to pursue any employment tribunal or claim against your employer.

Are settlement agreements taxable?

It depends on to what the settlement agreement relates to. A termination package in a settlement agreement will typically compromise various contractual and non-contractual elements, some of these will be liable to tax, and some may not. In general, employers can pay the first £30,000 compensation for the settlement agreement tax-free, but this will not apply to all payments.

Are there any recent tax changes to settlement agreements?

From the 6th April 2019, it was decided that employers will have to pay class 1a national insurance contributions on part of the termination payment that exceeds the £30,000 exemption.

Do I have to pay legal costs?

Usually, it will be down to the employer to pay the legal fees.

What should a settlement agreement include?

A settlement agreement will usually include a contract between employer and employee, stating the terms of the agreement, the settlement amount and the reasons for the settlement; it will also have a confidentiality clause.

What is classed as a good settlement agreement?

Most cases will settle out of court before proceeding to a trial. Some may say that the measure of a good settlement is when both of the parties (employer and employee) are unhappy as this means that the employer paid more out than he anticipated and the employee accepted less than he expected to get.

What if you do not accept a settlement agreement?

If you do not accept a settlement offer, be prepared as this may cause it to go to court for trial. If you do accept the agreement it is guaranteed money without having to go through court proceedings.

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