Redundancy settlement agreement advice

If your role is at risk of redundancy, your employer may offer you a settlement agreement instead of running the full redundancy process. Often to move faster, avoid a formal consultation, or settle a dispute about how the process was handled.

Why employers offer a settlement instead of standard redundancy

Statutory and contractual redundancy pay is often lower than what's offered in a settlement agreement, because a settlement also buys certainty: in exchange for a bigger payment, you agree not to bring any claims, such as unfair dismissal or discrimination in how the selection was handled. If your employer has skipped steps in a fair redundancy process. Proper consultation, a fair selection pool, genuine consideration of alternative roles. A settlement agreement can be their way of closing that risk down quickly.

What your redundancy settlement should include

• Statutory redundancy pay. Based on age, length of service and weekly pay, subject to the statutory cap
• Any contractual enhanced redundancy pay your employer offers on top
• Notice pay or payment in lieu of notice (PILON). Taxed differently to your redundancy payment
• Outstanding holiday pay
• An additional "compensation for loss of employment" payment. This is usually what's negotiable, and where the settlement premium sits

Questions worth asking before you sign

• Was I in a fairly selected pool, and were alternatives to redundancy genuinely considered?
• Is the payment broken down so I can see what's tax-free and what isn't?
• Would I be better off letting the formal redundancy process run its course instead?
• Are there restrictive covenants that would limit my next job?

Your right to time off for job hunting

If you've worked for your employer for two years or more and are being made redundant, you're generally entitled to reasonable paid time off during your notice period to look for a new job or arrange training. What counts as "reasonable" isn't fixed by law. It depends on your role and circumstances. But it's a genuine statutory right, not a favour your employer is choosing to extend.

If your employer is insolvent

If your employer has gone into insolvency and can't pay what they owe you, you can usually claim your statutory redundancy pay and other money owed (such as unpaid wages, holiday pay and notice pay) directly from the government's Redundancy Payments Service, rather than from your employer. This is a separate route from a settlement agreement, and worth knowing about if your employer's financial position looks shaky.

Tax on a redundancy settlement

Genuine compensation for loss of employment can usually be paid tax-free up to £30,000, but notice pay, PILON and holiday pay are taxed as normal income. See our full tax on settlement agreements guide. A solicitor will check the split is genuine, not just relabelled to look tax-free.

If you've been offered a redundancy settlement agreement, send it to us. We'll pass it straight to an independent, SRA-regulated solicitor who can advise on the numbers and terms for your situation.

Wherever you are in the process, Settlement Agreement Guide is here to help.