Common Questions Asked Regarding a Settlement Agreement

How much do solicitors charge?


An obvious question for anyone who has been offered a settlement agreement is how much will a solicitor charge for advice on the agreement. Almost all settlement agreements refer to a contribution to legal costs detailed within the document. This typically ranges from £250 to £1000 plus VAT. It is important for individuals seeking settlement agreement legal advice to receive clarity from their legal adviser about the costs that will be incurred.


We provide an undertaking here at Settlement Agreement Advice that the legal fee contribution will not be exceeded without our clients’ express authority.


What this means is that individuals have the security of understanding that there will not be any extra money for them to pay for legal costs in taking advice on the agreement unless they have authorised their lawyer to incur those costs.


In a situation where individuals are seeking to agree with the clauses detailed within the settlement agreement and merely require advice on the document, the legal fee contribution will pay for all of their legal costs and no extra fee will be payable by the individual to the solicitor who has been instructed.


If a decision is made to negotiate the sums which have been offered under the settlement agreement, the solicitor will make it clear to the client what amount will be charged for this negotiation. In some cases, we will agree to pursue the negotiation on a no-win, no-fee basis with a view to only charging the client in the event that the negotiation is successful. If you require further information in relation to charges for advice on a settlement agreement, please contact us at the numbers provided.

Do you pay tax on a settlement agreement?


Employees are often concerned about whether or not the payments to be made to them under a settlement agreement may be made tax-free. Any payments which are contractual and which are paid under a settlement agreement will be subject to deductions for tax and National Insurance.


Any payments which are made outside the contract may be made tax-free, provided those payments are less than 30,000 pounds. It is typical for individuals to provide a tax indemnity when they enter into a settlement agreement.


This means that it will be agreeing to be liable for any tax, fines or penalties arising as a result of the payments made under the agreement. Individuals signing settlement agreements should take legal advice on the meaning of the tax indemnity that they are entering into.

What’s a good redundancy package?


Individuals being made redundant are often offered settlement agreements by their employers. The redundancy package which is offered depends on whether or not the employer has a contractual redundancy or whether individuals are offered statutory redundancy pay only.


A good contractual redundancy package might be three or four weeks’ salary per year’s service subject to age factor. The statutory minimum redundancy entitlement is also determined by the number of years of service an employee has been employed multiplied by their weekly salary, subject to a statutory maximum. The age factor is also applied to this calculation so those employees employed for years over the age of 41 received 1.5 times their weekly salary.


Employees being offered redundancy packages should receive all of their contractual benefits including salary and bonus etc., together with a tax-free sum on top of this. The maximum tax-free payment which can be made as part of a redundancy package is £30,000.


Here is a video that covers other common questions we get asked.