Your Settlement Agreement Solicitor

The Settlement Agreement Solicitor

Episode 5 How much money will I receive under a settlement agreement?

Welcome to the Settlement Agreements solicitor podcast, your go-to resource for everything related to settlement agreements in the workplace. I'm your host, Geoffrey Caesar. a solicitor of England and Wales with over 20 years of experience specialising in settlement agreements.

Today we're diving into one of the most frequently asked questions. How much money will I receive under a settlement agreement? Before we get into the nuts and bolts, it is essential to understand that settlement agreements are unique. There is no one-size-fits-all answer regarding how much money you'll receive. Several factors come into play, and while there's no exact science to it, I will walk you through the key elements typically considered when calculating your settlement amount.

1. Statutory redundancy pay

If you've been dismissed by reason of redundancy, you're likely entitled to statutory redundancy pay which forms the foundation of most settlement agreements where redundancy is involved. The calculation is based on three factors, your age, your length of service, and your weekly pay capped at a statutory limit. In general, you will receive one and a half weeks pay for each full year of service over the age of 41, one week's pay for each year of full service between the ages of 22 and 40, half a week's pay for each full year under the age of 22. Now, this is the legal minimum, but many employers offer more in the context of a settlement agreement. Some offer enhanced redundancy packages to incentivise an amicable departure and avoid potential legal disputes.

2. Pay in lieu of notice, also referred to as PILON

Another important component of settlement agreements is pay in lieu of notice. or PILON. If your employer is terminating your employment immediately, they might include a payment equivalent to your contractual notice period rather than requiring you to work your notice. For example, if your contract stipulates a three-month notice period but your employer doesn't want you to work that period, they'll include an additional three months' pay under the settlement agreement. Depending on how it is structured, this might be taxable, but careful drafting of the agreement can sometimes reduce the tax burden.

3. Compensation for loss of office

A big part of any settlement agreement is the compensation for loss of office. This is where things can get a bit more fluid. This payment compensates you for the fact that your employment is ending abruptly and without you resigning. Several factors influence this figure. Firstly, length of service. The longer you've been with the company, the higher the compensation is likely to be. Secondly, current salary and benefits. This includes things like bonuses, commissions, car allowances or pension contributions. Thirdly, likelihood of finding a new job. If it's a tough job market or your specific industry has few opportunities, you may be able to negotiate a higher payment to cover the time it will take you to find new employment. Generally speaking, most employers aim to offer between one to six months salary as compensation, but this can vary significantly depending on your circumstances. the risks involved for the employer and the strength of any potential claims you might have against them.

4. Compensation for Employment Claims

If there's a risk that you could pursue legal claims against your employer, particularly claims of unfair dismissal, discrimination or whistleblowing, your settlement agreement might reflect this risk. Employers are typically keen to avoid legal disputes, which can be costly and damaging to their reputation. The value of any potential claim, however, will depend on factors such as... Firstly, the strength of the claim, how strong your legal arguments are. Secondly, losses incurred. This includes loss of salary, bonus, or career progression opportunities. Thirdly, impact on your mental or physical health. This could increase the overall settlement figure if you've suffered from stress or ill health as a result of your employer's actions. The stronger your potential claims, the more leverage you have in negotiating a higher settlement figure.

5. Other elements

Let's not forget the non-monetary benefits that can also be negotiated as part of your settlement agreement. For example, references. Securing a positive reference can be crucial for your future job prospects. Tax treatment. Some parts of your settlement may be tax-free, such as the first £30,000 of a compensation for loss of office. So structuring the payment in a tax-efficient way is often an important part of negotiations. How the settlement amount is typically arrived at.

How do we bring all of these elements together? Well, negotiations typically begin with the statutory redundancy pay and a PILON, as the baseline. Then, compensation for loss of office is added to reflect the financial and emotional impact of losing your job. From there, we consider any risks of legal claims.

If you have strong claims or are in a senior role, the settlement figure can increase significantly. On the other hand, if the employer is confident that their actions are lawful, they may offer less. At this point, it's a negotiation between your legal representative and the employer's legal representative with both sides assessing the risks and costs of litigation versus a quick resolution. A good settlement agreement will strike the right balance between financial compensation and practical benefits, such as securing a good reference or avoiding legal disputes.

In summary, while there isn't a straightforward formula for calculating settlement amounts, the figure is typically built on a combination of statutory entitlements, like a redundancy pay and notice periods, and compensation for loss of office and potential claims. Each case is different, so the final settlement amount will vary depending on your specific situation, including how long you've worked, what claims you may have and how long it might take to find another job.

That's it for this episode of The Settlement Agreement Solicitor. If you're negotiating a settlement agreement or have any questions, feel free to contact me.

I'm Geoffrey Caesar, and I'll see you next time with more insights on settlement agreements.