Ask the Expert: Understanding Settlement Agreements with Katie Ash

Employment solicitor Katie Ash explains and answers some questions around settlements agreements.

Understanding Settlement agreements:

• Do you have to pay tax on a settlement agreement?
• What happens to any bonuses?
• What happens to any payments in lieu of notice?

What is a settlement agreement?

A Settlement Agreement (which used to be called a Compromise Agreement), is a legally binding contract made between an employee and employer, either during or after employment, which formally agrees the leaving terms between both parties and in effects stops the employee from bringing legal action against the employer in respect of their employment and/or its termination, usually in exchange for a termination payment.