Settlement Agreement Employer Advice – Negotiating a settlement agreement can be a difficult process to handle.
Ending an employee’s time in your employment isn’t easy and knowing what you need to include in a settlement agreement from a legal point of view can be tricky.
So let’s start with the basics…
A settlement agreement is where an employer and employee agree to end the employee’s time with the business.
What Is A Settlement Agreement?
Once the employee has agreed to the settlement agreement, they can no longer bring a claim to an employment tribunal.
It’s common for a financial settlement to be made but the exact amount will depend on how long they’ve worked with the company, their earnings, and other factors.
You might include non-financial benefits such as gardening leave and allowing an employee to keep health insurance or a company car.
The general rule is that if it’s relevant, you should include it in a settlement agreement.
You’ll most likely need to include some things such as:
- A termination payment.
- Any outstanding notice pay, holiday pay, and bonuses.
- A confidentiality clause.
- An agreement for the employee to waive their right to bring legal action.
You might also want to include a non-derogatory clause, a contribution towards the employee’s legal fees, and an agreement to provide a good reference.
However, if anything is missed in the settlement agreement, the employee might still be able to bring legal action further down the line.
This is why it’s worth thinking about getting expert settlement agreement advice.
Employment Tribunal Settlement Tactics
It is often the case that neither party is going to get precisely what they want, so think about the best-case scenario and the worst-case scenarios when it comes to settling with an employee.
What is the most you’d be willing to settle for, and what would you be willing to give?
And what is your ideal outcome?
Some things that you value might not be important to an employee, and it might be that you can use non-financial incentives to reduce the amount of compensation you pay.
That is why it’s good to have a legal expert in your corner to understand what the law requires and negotiate from there.
The goal is to avoid an employment tribunal, which can be long and costly.
Therefore, if you receive a counter offer you need to think about whether it’s worth accepting to end the case as soon as possible.
Should I Offer The Legal Minimum Compensation?
A settlement agreement is what it says it is, which means you’re probably going to have to settle somewhere in the middle.
You might want to make an offer above the legal requirement as a gesture of goodwill. This can be a smart tactic because the employee is more likely to accept this offer if they feel like you’ve been fair.
It’s important to think about the tax implications of any termination payments and compensation. The first £30,000 of a termination payment is tax-free but anything beyond that is subject to tax regulations.
The rules cover statutory redundancy pay, additional severance or enhanced redundancy pay, and non-financial benefits such as company cars, tech, and any other property the employee keeps.
Employers will also pay employer Class 1A National Insurance on any cumulative amount over £30,000.
An unfair dismissal claim has a maximum tribunal award of £93,878 or 12 months’ salary – whichever is lower.
Employers usually use this as a guide for compensation. Whilst there’s no maximum, since that’s the most you can get at tribunal, most employers will not pay more than that in a settlement agreement unless there are extenuating circumstances.
Settlement Agreement Solicitors Near Me
We know that everyone has commitments, whether that’s family, a mortgage, rent, childcare costs, bills, running a car, travel, or anything else – the list is endless, really.
And we also know that as an employer, you have staff to pay, bills to pay, clients to pay and obligations to meet.
Which is why ensuring that you agree fair and legal settlement agreements is crucial
– and at Solicitors Near Me, we’re here to help.
We connect you with solicitors near you for FREE so you can get legal advice and avoid lengthy and costly legal action from employees.
There’s no obligation to proceed with the solicitor that we connect you with, and there’s zero cost until you make a decision, either…