Settlement Agreement Calculator UK

A settlement agreement (formerly called a compromise agreement) is a legally binding contract between an employer and employee that typically ends the employment relationship in exchange for a financial payment. The employee agrees to waive their right to bring future claims against the employer. It must be signed by an independent legal adviser to be valid.

There is no fixed formula, but typical settlement agreements include statutory redundancy pay (if applicable), notice pay, accrued holiday pay, and an ex-gratia payment ranging from one to six months salary depending on the circumstances. The total depends on your length of service, the reason for termination, and your negotiating position.

The first £30,000 of a genuine termination payment (the ex-gratia element) is tax-free. Statutory redundancy pay counts towards this £30,000 allowance. However, notice pay (whether paid in lieu or worked), holiday pay, and any payments for contractual benefits are fully taxable as normal earnings.

Yes. By law, a settlement agreement is only valid if the employee has received advice from an independent legal adviser (usually a solicitor) about the terms and effect of the agreement. Most employers contribute between £350 and £500 plus VAT towards solicitor fees as part of the settlement.

ACAS recommends employers give employees at least 10 calendar days to consider a settlement agreement. In practice, this period can be extended by agreement. You should not feel pressured to sign quickly and should use this time to take legal advice.

Yes, settlement agreements are negotiable. The initial offer is rarely the final amount. Factors that strengthen your position include long service, potential discrimination or unfair dismissal claims, and the inconvenience of the termination. A solicitor can advise on realistic counter-offer amounts.

An ex-gratia payment is a voluntary payment made by the employer that is not contractually required. In settlement agreements, this typically represents compensation for loss of employment. The first £30,000 of an ex-gratia payment is usually tax-free, making it a tax-efficient element of the package.

Your pension rights should be addressed in the settlement agreement. Typically, employer pension contributions continue until the termination date. Some agreements include an additional pension contribution in lieu of notice. Your solicitor should check that pension clauses are properly drafted.

You may be able to claim Universal Credit or Jobseekers Allowance after a settlement agreement, but the payment may affect your eligibility or the amount. There may be a waiting period if you received a large payment. Contact your local Jobcentre Plus for specific guidance.

Many settlement agreements include restrictive covenants that limit what you can do after leaving. These may include non-compete clauses (preventing you from working for a competitor), non-solicitation clauses (preventing you from approaching clients), and confidentiality obligations. Your solicitor should review these carefully.