Understanding Settlement Agreements: Your Essential Guide

Contents:

1. 1. What is a settlement agreement?
   2. Common scenarios where a settlement agreement is offered
   3. Settlement agreement process
   4. How much could I receive in a settlement agreement?
   5. What happens if you refuse a settlement agreement?
   6. How long do you have to consider a settlement agreement?
   7. Are settlement agreements confidential?
   8. Can I negotiate a settlement agreement?
   9. What is a MARS settlement agreement?
   10. Do I need legal advice when signing a settlement agreement?
   11. Our services and solicitors
   12. Recent settlement agreement cases
   13. Settlement agreement FAQs
   14. Settlement agreement resources
   15. About the authors

What is a settlement agreement?

A settlement agreement (previously called a compromise agreement) is a legally binding agreement between an employer and an employee. It is usually used to bring an employment relationship to an end or in some cases to resolve a workplace dispute on agreed terms. Employers often use settlement agreements in redundancy situations, during internal disputes, or where there is a potential Employment Tribunal claim.

A settlement agreement is one of the only ways that an employee can lawfully agree not to bring employment claims.

Settlement agreements are offered either on a, “without prejudice”, or strictly confidential/pre-termination basis. This means the discussions, correspondence  and any  documents are treated as “off the record” and cannot be referred to in any open HR process or future legal proceedings.

The purpose of the settlement agreement is to create a clean break between the parties. In signing it, the employee agrees not to pursue legal employment claims against the employer relating to their employment or its termination, except for certain claims that cannot legally be waived, for example future personal injury or pension claims. In return, the employer usually provides a termination payment or other agreed compensation or consideration. The agreement sets out all the terms governing the end of employment or resolution of the dispute.

What does a settlement agreement usually include?

While the exact terms vary, a settlement agreement typically contains:

• A waiver of claims – confirming that the employee will not bring claims against the employer, apart from specifically excluded claims.
• Confidentiality obligations – requiring the employee and employer to keep the agreement and its terms confidential, subject to permitted disclosures (for example, to immediate family or professional advisers).
• Details of payments – such as payment in lieu of notice, holiday pay, salary, bonus/commission, share schemes, benefits, and any compensation or severance/termination/ex-gratia payment.
• Employee warranties – promises given by the employee to the employer.
• A tax indemnity clause – dealing with tax responsibilities for certain payments.
• Reference and announcement – it is typical to agree a reason for leaving and the wording of a reference to a future employer, and announcement to colleagues and/or third parties.
• Conclusion of open processes – a settlement agreement usually records that any open process is concluded such as grievances or disciplinary matters.

Common scenarios where a settlement agreement is offered

Settlement agreements are used in a wide range of situations. Although every case is different, employers commonly offer them in the following circumstances:

• Redundancy situations – including voluntary redundancy or where an employer and/or employee wishes to avoid a formal consultation process, and/or the employer is offering an enhanced redundancy payment.
• Performance or capability concerns – where an employer is considering a performance improvement plan or formal performance process/warnings.
• Misconduct or disciplinary issues – as an alternative to continuing with a disciplinary investigation or process.
• Workplace disputes or grievances – including allegations of bullying, discrimination or breakdown in working relationships.
• Long‑term sickness absence – where an employee is unable to return to work and both parties wish to agree an exit.
• Organisational restructures – where roles are changing or being removed.
• Senior exits – where employers and senior employees wish to agree terms privately and efficiently.
• For commercial reasons – a business is being sold or merged.
• Resolution – to resolve any dispute between employer or employee.

In each of these scenarios, a settlement agreement provides certainty for both parties and avoids the time, cost and stress of ongoing procedures or Employment Tribunal Litigation.

A settlement agreement (or COT3 via ACAS) is the only way that employers can make sure employees have validly waived claims.

What is the settlement agreement process?

The settlement agreement process varies depending on different and unique circumstances, but generally follows the below steps:

A protected conversation or offer is made 

Either the employer or the employee can initiate discussions about agreeing terms under a settlement agreement. To make this a protected conversation there must be a genuine attempt to reach an agreement to resolve an issue and/or end employment. This can happen at any stage of employment and be initiated by employer or employee.

Negotiation

The employee may wish to negotiate the terms of the agreement. This can be done before or after the settlement agreement is received. We can assist with negotiations and can do so directly with an employer or employee, or in the background.

The employer issues the draft settlement agreement 

Once an offer is made, the employer will provide the employee with a written settlement agreement setting out the proposed terms. Sometimes the employer will ask the employee to provide the contact details of their chosen adviser at this stage.

The employee seeks independent legal advice 

The employee must consult an independent employment lawyer so the terms and effect of the agreement can be explained in full.

Legal advice and potential negotiation 

The adviser will review the agreement, discuss any amendments that may be needed, and, if agreed with the employee, engage in further negotiations with the employer.

Signing the agreement 

When the employee is satisfied with the terms, the settlement agreement is signed by the employee and the employer, and the independent legal adviser will provide an adviser’s certificate.

Reaffirmation

If the termination date is in the future, an employer may require an employee to sign a reaffirmation agreement. This is where the employee reaffirms nearer the termination date that the original terms of the agreement are correct and confirms agreement to waive claims.

Payments and legal fees

The payments and arrangements under the agreement should be fulfilled by the employer.

Typically the employer will require the employee’s adviser to send their invoice for legal fees to the employer, marked as payable by the employee.

How long does a settlement agreement process take?

The timescale for completing a settlement agreement varies depending on the complexity of the terms and whether any negotiation is required. Straightforward agreements can often be reviewed, explained and signed within a few days. If negotiations are needed, the process may take longer, typically ranging from a few days to a few weeks. Employers will usually set a deadline for returning the signed agreement, and ACAS recommends that employees are given at least 10 calendar days to consider the terms. Your solicitor will guide you through the process and help ensure the agreement is completed within the required timeframe.

What happens after signing a settlement agreement?

Once the agreement has been signed by you and your employer, and your independent legal adviser has signed the adviser’s certificate, it becomes a legally binding contract. Your employer will then process the payments set out in the agreement, which are usually made on the next payroll date or within a specified period. You will receive the consideration included in the agreement, for example your final salary, notice pay, holiday pay and any agreed compensation. You may also be required to return company property, comply with any post‑termination restrictions, and follow any agreed handover arrangements. If your employer fails to make a payment or comply with the terms, the agreement can be enforced.

Typically the employer will require the employee’s adviser to send their invoice for legal fees to the employer, marked as payable by the employee.

How much could I receive in a settlement agreement?

The amount you receive under a settlement agreement will depend on your individual circumstances. Payments usually fall into several categories, and each should be checked carefully.

Salary

You may be entitled to receive your normal salary up to and including your termination date (end of employment). This should  be paid subject to tax and National Insurance deductions. Your payslips can be used to confirm that the salary figure included in the agreement is accurate.

Notice pay

You should check your notice entitlement in your contract of employment in the first instance. Statutory (legal) minimum notice is:

• One week if you have between one month and two years’ service
• One week for each full year of service between two and twelve years
• Twelve weeks if you have twelve or more years’ service

Your contract may provide for a longer notice period, in which case the contractual notice applies. Your employer may require you to work your notice or may choose to pay you in lieu of all or part of it. Notice pay is taxable and subject to National Insurance.

Holiday pay

When your employment ends, you may be paid for any accrued but unused holiday, however, some agreements require you to take any accrued but unused holiday ahead of the termination date. If your employer is paying you this payment is subject to tax and National Insurance. The statutory minimum entitlement is 5.6 weeks per year (including bank holidays) (28 days for a full-time employee), but your contract may provide for more. If you leave partway through the holiday year, your entitlement is calculated on a pro‑rata basis. HR or any internal HR portal should confirm how much holiday you have remaining.

Compensation payment

Compensation payments (sometimes called termination, severance, discretionary, or ex-gratia payments) vary depending on the circumstances for example, whether you are settling a potential Employment Tribunal claim, resolving a grievance, or being offered a settlement agreement instead of entering a redundancy, disciplinary or capability (performance or sickness) process, and any other commercial factors.

Under current tax rules, compensation payments are often tax‑free up to £30,000.

We can advise on whether the compensation offered is reasonable in light of your situation. This will depend on the alternative open process, the nature of the issue, whether there would be a valid claim, and other commercial considerations.

Benefits

You should receive your usual contractual benefits up to your termination date. Settlement agreements normally waive any entitlement to benefits after employment ends. If any benefits are to continue beyond the termination date, this should be expressly stated in the agreement, for example if you have agreed to continue benefiting from a private health care plan for a period of time after the termination date.

Other payments

A settlement agreement may also include additional payments, for example, compensation for entering into new restrictive covenants or for agreeing to specific confidentiality obligations that go beyond your existing contractual duties.

What happens if you refuse a settlement agreement?

Refusing a settlement agreement does not mean you are doing anything wrong, it simply means you are choosing not to accept the terms offered. However, it is important to understand what may happen next so you can make an informed decision. We would suggest that you take legal advice before rejecting any offer.

Your employment continues

If you do not sign the agreement, your employment will usually continue under your existing contract. Your employer cannot force you to accept a settlement agreement, and you remain entitled to your normal rights and protections at work.

Your employer may take further action

In many cases, a settlement agreement is offered as an alternative to a formal workplace process, such as redundancy, disciplinary action or performance management. If you refuse, your employer may proceed with that process instead. This could ultimately lead to dismissal, depending on the circumstances.

You may still be able to negotiate

Refusing the initial offer does not necessarily close the door. Many settlement agreements are negotiated, and it may be possible to secure improved terms, such as a higher financial payment, a better reference, or revised wording.

Consider your legal position

Before rejecting an offer, it is important to assess the strength of your legal position. For example, if you may have a claim for unfair dismissal or discrimination, this could affect your negotiating power.

Taking legal advice can help you weigh up your options and decide whether to accept, reject or negotiate the agreement.

How long do you have to consider a settlement agreement?

If you are offered a settlement agreement, you should be given a reasonable amount of time to consider the terms before deciding whether to sign. While there is no strict legal minimum in most cases, guidance from ACAS recommends that employees are given at least 10 calendar days to review a written settlement agreement.

Why time to consider matters

A settlement agreement is a legally binding document. By signing it, you are usually giving up your right to bring certain claims against your employer, such as unfair dismissal or discrimination. Because of this, it is important that you fully understand the terms and do not feel pressured into making a quick decision.

Can your employer set a deadline?

Employers will often include a deadline for accepting the offer. While this is normal, the timeframe should still be reasonable. In some situations, such as redundancy exercises or business restructure deadlines may be shorter, but they should not prevent you from obtaining proper legal advice.

If you feel the deadline is too tight, you can request an extension. Many employers are willing to allow additional time, particularly if you are actively seeking advice.

Taking legal advice within the timeframe

For a settlement agreement to be valid, you must receive advice from an independent solicitor. In most cases, your employer will contribute towards the cost of this advice. The standard minimum contribution is usually £500 plus VAT.

Speaking to a solicitor as early as possible will help ensure you understand your rights, meet any deadlines, and have the opportunity to negotiate better terms if appropriate.

Are settlement agreements confidential?

It is common for an employer to begin the process by sending a letter outlining the terms they intend to offer before issuing the formal settlement agreement. At this stage, employers usually make clear that the discussions must remain confidential, often to prevent news of the offer spreading among colleagues.

What does the confidentiality clause cover?

Most settlement agreements include a confidentiality clause requiring both the employer and employee to keep the agreement private. This typically covers:

• The terms of the agreement;
• The fact that the agreement exists; and
• The discussions and negotiations leading up to it.

In certain regulatory sectors, such as academic settings, any confidentially clauses would require regulatory approval.

Who can I tell about my settlement agreement?

Although the agreement is confidential, it will usually include an authorised disclosures clause. This sets out who the employee may speak to about the agreement. Common permitted disclosures include:

1. Your legal advisers;
2. Medical advisers or anyone who owes you a duty of confidentiality; and
3. Your spouse, partner, civil partner, or immediate family members.

What disclosures are legally permitted?

Being offered a settlement agreement does not prevent you from discussing it with your solicitor or with close family members. However, you should avoid discussing it with colleagues or friends.

Settlement agreements also normally confirm that employees may disclose information where required by law or regulation, or for the purpose of reporting a criminal offence or making a protected disclosure (whistleblowing). These types of disclosures cannot legally be restricted by a settlement agreement.

What does “without prejudice” mean?

Settlement agreements are usually offered on a without prejudice basis or confidential/pre termination discussion, meaning the discussions are “off the record” until the agreement is signed. This means that the contents of the discussion cannot ordinarily be used against either the employee or employer in any future open process or litigation. Once signed by both parties, the agreement becomes a legally binding agreement that can be relied upon by either side.

Can I negotiate a settlement agreement?

Employees are entitled to negotiate the terms of a settlement agreement, particularly where they have leverage such as potential legal claims or the time and cost an employer would face in running a formal HR process. Negotiations often focus on improving compensation, confidentiality terms, references, and other obligations.

If you have been offered a settlement agreement and are not satisfied with the proposed terms, you can negotiate before the agreement is signed.

What can be negotiated?

Negotiations may cover a range of issues, including:

• The level of compensation offered
• Confidentiality or restrictive covenant clauses
• The wording of an agreed reference
• Any obligations placed on you under the agreement

To negotiate effectively, you will likely need some leverage. This may be a potential Employment Tribunal claim or the fact that your employer would otherwise need to undertake a lengthy and resource‑intensive HR process. The time, cost and risk associated with these processes often encourages employers to negotiate further.

Negotiations must take place before the agreement is signed and should be conducted on a without prejudice basis so that the correspondence cannot be referred to in open proceedings.

It is important to note that in some situations, for example large-scale voluntary redundancy schemes, the agreement is prepared in accordance with the scheme rules, therefore any negotiation is unlikely to be considered by the employer.

What happens during negotiations?

1. Initial discussion

You would first consider whether negotiation is appropriate in your circumstances and whether the terms offered reflect your position.

2. Negotiation stage

Negotiations may involve direct discussions with your employer or written correspondence setting out the changes you are seeking. Throughout this stage, you would assess whether the revised terms represent a fair outcome.

3. Reviewing the agreement

Once you are satisfied with the negotiated terms, the agreement is reviewed to ensure it accurately reflects what has been agreed.

4. Signing the agreement

When you are ready to proceed, the agreement is signed by you, your employer, and your independent legal adviser will sign the adviser’s certificate, making it a legally binding agreement.

How our Employment experts can help

Negotiating a settlement agreement can feel complex and stressful, which is why specialist advice is often essential. We can assist with the following:

• Negotiate directly with your employer on your behalf
• Assist behind the scenes by preparing correspondence for you to send
• Advise you on whether the terms offered are fair
• Explain the agreement once negotiations are complete
• Guide you through the signing process

What is a MARS settlement agreement?

A MARS (Mutually Agreed Resignation Scheme) is a voluntary scheme typically used by public sector organisations, such as the NHS, universities, schools, and the police. MARS schemes are usually used when an employer needs to reduce staffing costs. Under a MARS, employees can volunteer to resign in exchange for a tax‑free payment, calculated in line with the organisation’s scheme rules.

If an employee’s application to the scheme is accepted, they will usually be required to sign a MARS settlement agreement. This formalises the end of their employment and records their agreement not to pursue claims against the employer in connection with their employment or its termination.

How does the MARS process work?

Although each organisation will have its own rules and eligibility criteria, the process generally follows three stages:

• Scheme announcement: The organisation advertises the MARS internally, inviting eligible employees to apply.
• Application review: The employer assesses applications in line with the scheme rules, which may include operational needs, budget considerations, and eligibility requirements.
• Offer and agreement: If an application is approved, the employee is offered a place on the scheme and issued with a MARS settlement agreement to take advice on and then sign.

It is important to review the scheme documentation carefully, as each organisation’s rules will determine eligibility, payment calculations, and the overall process.

How is a MARS different from a regular settlement agreement?

A MARS settlement agreement contains many of the same legal clauses as a standard settlement agreement, but the context and purpose are different:

• A MARS is part of a formal, voluntary scheme used by public sector employers to reduce staffing costs. Employees must apply, and payments are calculated strictly in line with the organisation’s scheme rules.
• A regular settlement agreement is not part of a scheme. It is used in a wide range of situations such as disputes, redundancy discussions or performance issues, and the terms (including compensation) are negotiated on an individual basis.

Do I need legal advice when signing a settlement agreement?

For a settlement agreement to be legally binding, an employee must receive independent legal advice on the terms and effect of the agreement. This requirement exists because, by signing, the employee is agreeing to waive their right to bring employment related claims against their employer.

As this is a significant legal step, the law requires the agreement to be explained by a relevant independent adviser, such as a qualified solicitor.

A settlement agreement will not take effect unless this advice has been given. The adviser must confirm that they have explained the terms and the impact of the agreement, including how it affects the employee’s ability to pursue claims in the Employment Tribunal. This requirement is set out in the Employment Rights Act and is designed to protect employees from giving up their rights without fully understanding the consequences.

If you have been offered a settlement agreement, it is important to arrange legal advice promptly so that the agreement can be reviewed and explained before it is signed.

Who pays for legal advice?

It is standard practice for employers to pay for, or contribute towards, the cost of the employee obtaining independent legal advice. This contribution is usually set out in the settlement agreement itself. Typical contributions range from £500 to £1000 plus VAT, and the solicitor will normally invoice the employer directly, meaning there is no cost to the employee for having the agreement explained and signed off.

If you are satisfied with the terms offered, we guarantee to cap our fees at the employer’s contribution, so you will not pay anything for the advice required to make the agreement legally binding.

If you need help negotiating the terms, we can provide a fee estimate for that additional work. In some cases, it may be possible to ask the employer to increase their contribution as part of the negotiation process.

Our services and solicitors

Our specialist Employment Law team has extensive experience advising employees on settlement agreements of all types, from straightforward sign‑off appointments to complex negotiations. We provide clear, practical guidance at every stage and ensure you fully understand your rights before signing anything.

Advice and Sign‑Off Service

If you are happy with the terms offered, we provide a straightforward advice and sign‑off service. In most cases, your employer will contribute towards the cost of your legal advice. We are happy to cap our fees at the employer’s contribution, meaning you will not have to pay anything for the advice required to make the agreement legally binding.

During your appointment, we will:

• Explain the terms and effect of the settlement agreement;
• Identify any potential claims you may be waiving;
• Advise on any amendments needed to protect your position;
• Guide you through the signing process; and
• Return the signed agreement to your employer on your behalf.

Appointments can take place by telephone, Microsoft Teams, or in person, and typically last between 30 minutes and one hour. We regularly use DocuSign (electronic signing) to make the signing process quick and convenient, and also to avoid the need for printing or attending an office to physically sign your agreement.

Negotiation support

If you are unsure about the terms offered, or believe the offer could be improved, we can assist with negotiations. Our team will:

• Understand the merits of your position;
• Advise you on whether further negotiation is appropriate;
• Negotiate directly with your employer on your behalf; or
• Support you behind the scenes by preparing correspondence for you to send.

Where possible, we will try to include negotiation time within the employer’s legal fee contribution. If this is not feasible, we will agree a fee arrangement with you in advance, which may include a fixed fee.

Free initial discussion

We offer a free, no‑obligation initial call at any stage of the process. Whether you want the agreement explained, are considering negotiation, or simply want to understand your options, our team is here to help.

To speak to one of our settlement agreement specialists or to book an appointment, please contact us at settlementagreement@ellisjones.co.uk or call 01202 525333.

Recent settlement agreement cases

• We are regularly instructed by public sector organisations in large scale voluntary redundancy or MARS schemes, meaning that we deal with a number of employees from the same organisation. This provides consistency and a tailored approach to the specific organisation.
• Our team recently assisted an employee going through a flawed redundancy process. With the help and advice from our team, our client was able to reach an agreement on far more favourable terms than were originally offered to them, and an increased compensation payment.
• Our team assisted an employee who had never been through a disciplinary process previously and who was very anxious about the outcome. They felt as though they could not return to the business due to the damage the process had on them, and therefore having taken advice from our team they were able to initiate a without prejudice conversation and reach a favourable agreement with their employer.
• We regularly assist employees who are faced with formal performance allegations, to negotiate enhanced settlement payments to exit a business.
• We work alongside our business services team in assisting directors entering into settlement agreements when businesses are sold or merged.

Settlement agreement FAQs

What is a settlement agreement?

A settlement agreement is a legally binding agreement between an employer and employee that sets out the terms for ending employment or resolving a workplace dispute.

How is settlement agreement pay calculated?

Settlement agreement pay is made up of several components rather than a single fixed amount. The total amount will depend on factors such as your length of service, salary, seniority, and whether you may have a potential claim against your employer, which can often increase your negotiating position.

Do I have to accept a settlement agreement?

No. A settlement agreement is voluntary, and you are not required to accept the terms offered by your employer.

How much should I get in a settlement agreement?

The amount varies depending on your salary, notice entitlement, holiday pay, benefits, and any compensation offered for waiving potential claims. It typically includes any contractual payments owed to you, such as unpaid salary, holiday pay, bonuses or commission, as well as a payment in lieu of notice if applicable. In addition, most agreements include a discretionary compensation payment (often called an ex gratia payment) for ending your employment and waiving potential legal claims.

Are settlement agreements tax‑free?

Certain payments, such as compensation for loss of employment, can be paid tax‑free up to £30,000. Salary, notice pay and holiday pay remain taxable.

Can I negotiate a settlement agreement?

Yes. Employees can negotiate compensation, references, confidentiality clauses and other terms, often using potential claims or the cost of HR processes as leverage.

Do I need a solicitor for a settlement agreement?

Yes. A settlement agreement is only legally binding if you receive independent legal advice on its terms and effect and an adviser signs off an adviser’s certificate.

Who pays for settlement agreement legal advice?

Employers usually contribute towards the employee’s legal fees. This contribution is normally set out in the agreement.

What does “without prejudice” mean in a settlement agreement?

It means that discussions and correspondence about the agreement are “off the record” and cannot be used in open proceedings, unless the agreement is signed and at which point the agreement will become open and binding.

Are settlement agreements confidential?

Yes. Most agreements include confidentiality clauses covering the terms, the existence of the agreement and the discussions leading up to it.

What is a MARS settlement agreement?

A MARS (Mutually Agreed Resignation Scheme) is a voluntary public‑sector scheme where employees can apply to resign in exchange for a tax‑free payment, formalised by a settlement agreement.

How is a MARS different from a standard settlement agreement?

A MARS is part of a structured organisational scheme with fixed rules and payment calculations, whereas a standard settlement agreement is individually negotiated.

What payments are included in a settlement agreement?

Common payments include salary to the termination date, notice pay, accrued holiday, benefits, and any compensation or severance payment.

Can I talk to anyone about my settlement agreement?

You can usually speak to your legal adviser, medical adviser, spouse, partner or immediate family. Wider disclosure is normally restricted.

How long does the settlement agreement process take?

The timeline varies, but most agreements are reviewed, negotiated and signed within a few days to a few weeks, depending on complexity.

What happens if I don’t sign the settlement agreement?

If you choose not to sign, your employment continues as normal and your employer may proceed with any ongoing HR process, such as redundancy, performance or disciplinary procedures.

How long do I have to consider a settlement agreement?

Employees are usually given a reasonable period to consider the terms. ACAS recommends a minimum of 10 calendar days, although employers may allow longer depending on the circumstances.

Can I withdraw from a settlement agreement after signing it?

Once a settlement agreement has been signed by the employee, employer and independent legal adviser, it becomes legally binding. It cannot usually be withdrawn unless both parties agree.

Settlement agreement resources

If you would like to explore additional guidance on settlement agreements and your employment rights, the following trusted UK resources provide clear, authoritative information. These organisations are widely recognised for their independence, reliability and expertise in employment matters.

ACAS – Using Settlement Agreements

ACAS provides comprehensive guidance on what settlement agreements are, when they are used, and the legal requirements for them to be valid. This is one of the most trusted resources for employees seeking clear, practical information.

Using settlement agreements – Settlement agreements – Acas

ACAS – Discussing and Negotiating an Offer

This resource explains how settlement discussions work, including protected conversations, confidentiality, and what to expect during negotiations. It is particularly helpful if you are unsure how to respond to an offer.

Discussing and negotiating an offer – Settlement agreements – Acas

ACAS – Making a Formal Offer

ACAS also provides guidance on how settlement agreements should be offered, what must be included in writing, and how much time employees should be given to consider the terms.

Making a formal offer – Settlement agreements – Acas

ACAS – Code of Practice on Settlement Agreements

This statutory Code explains the standards employers and employees should follow when discussing and negotiating settlement agreements. It is often referred to by Employment Tribunals.

Acas Code of Practice on settlement agreements | Acas

GOV.UK – Employment Rights and Termination of Employment

GOV.UK provides official guidance on employment rights, notice periods, redundancy and dismissal — all of which underpin many settlement agreement discussions.

Dismissal: your rights: Overview – GOV.UK

HMRC – Tax on Termination Payments

HMRC explains how different elements of a settlement agreement are taxed, including which payments can be made tax‑free and which must be processed through payroll. This is essential when reviewing the financial terms of any agreement.

Tax on termination payments: What you pay tax and National Insurance on – GOV.UK

About the authors

Kate Brooks

Partner, Solicitor & Head of Employment/HR Law

Employment Law

01202 057754

kate.brooks@ellisjones.co.uk

I am a Partner, Solicitor and Head of Employment/HR Services at Ellis Jones, advising both employers and employees on the full spectrum of employment law issues. My approach is to be straightforward and solutions‑focused, ensuring clients receive practical advice that works in real‑world situations.

I have extensive experience in negotiating termination deals and advising individuals on the terms of their settlement agreements, including senior exits and complex employment disputes. My work also covers Employment Tribunal claims, disciplinary and performance matters, redundancy and restructures, employment status issues, and the preparation and review of employment documentation.

Clients often describe me as pragmatic, commercial and easy to talk to. I take pride in providing clear guidance during what can often be a challenging time. Whether advising on a straightforward settlement agreement or navigating a more complex exit, my aim is always to help clients make informed decisions and achieve the best possible outcome.

Learn more about Kate

Rebecca Goudy

Associate Solicitor

Employment Law

01202 057747

rebecca.goudy@ellisjones.co.uk

I am an Associate Solicitor in the Employment Law team at Ellis Jones. I advise both employees and employers on a wide range of workplace issues. Since joining the firm, my focus has been on providing clear, pragmatic advice that helps clients understand their options and achieve the best possible outcome.

I advise on all aspects of settlement agreements, from reviewing straightforward agreements to negotiating improved terms. Settlement agreements can feel daunting, particularly when they involve waiving employment rights or navigating sensitive workplace situations. My aim is always to break down the legal complexities, explain the implications in straightforward terms, and ensure clients feel supported and informed throughout the process.

I have extensive experience advising both employees and employers on employment tribunal claims and negotiating potential settlements via Acas. My work also includes reviewing and drafting employment documents, advising on redundancy situations, performance concerns and workplace disputes.

My approach is calm, thorough and client‑focused. I understand that every situation is different, so I tailor my advice to the individual circumstances of each client, helping them move forward with clarity and confidence.

Learn more about Rebecca