How Much Compensation Is Normal in a UK Settlement Agreement?

By Solidaire Solicitors – Employment Law Specialists

A common question employees ask before signing a settlement agreement is:
“How much compensation is normal?”

In the UK, there is no fixed or guaranteed amount. Settlement agreement compensation depends on the facts of each case, the legal risk to the employer, and the employee’s potential tribunal claims. However, there are well-established market ranges used in practice.

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What Is a Settlement Agreement?

A settlement agreement is a legally binding contract between an employer and employee, usually used to end employment or resolve a workplace dispute. In return for compensation, the employee agrees not to bring certain legal claims against the employer.

To be valid, the employee must receive independent legal advice.

 

Typical Settlement Agreement Compensation Ranges

🔹 Low-Value or Low-Risk Cases

£2,000 – £10,000

These usually involve:

  • Short length of service

  • Weak or limited legal claims

  • Mutual or amicable termination

  • Redundancy with minimal dispute

Often includes:

  • Small compensation payment (ex-gratia)

  • Employer contribution to legal fees (£350–£500 + VAT)

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🔹 Average Employment Disputes

£10,000 – £30,000 (Most common range)

This level is typical where there is:

  • Risk of unfair dismissal

  • Disciplinary or capability dismissal

  • Redundancy disputes

  • Some discrimination risk (but not a strong case)

Most UK settlement agreements fall into this category.


 

🔹 High-Value or Strong Claims

£30,000 – £100,000+

Higher settlements are common where:

  • There is a strong discrimination claim

  • Whistleblowing is involved

  • The employee is senior or highly paid

  • The employer faces reputational or financial risk

⚠️ Discrimination and whistleblowing claims are uncapped at tribunal, which often drives higher settlement values.


 

What Factors Affect Settlement Compensation?

Employers usually assess settlement value based on:

💷 Financial Factors

  • Salary and benefits

  • Length of service

  • Notice period (or PILON)

  • Bonus or commission loss

⚖️ Legal Risk

  • Strength of potential tribunal claims

  • Likely compensation if the claim succeeds

  • Cost of defending a tribunal case

  • Management time and reputational risk

⏳ Timing

  • Before dismissal → lower offers

  • After dismissal → higher offers

  • After ACAS Early Conciliation → stronger negotiating position


 

Typical Breakdown of a Settlement Payment

Payment TypeTax Treatment
Notice pay (PILON)Taxable
Holiday payTaxable
Compensation (ex-gratia)Up to £30,000 usually tax-free
Legal feesUsually paid by employer

 

Tax Rules to Know

  • The first £30,000 of genuine compensation is normally tax-free

  • Salary, notice pay, bonuses and holiday pay are taxable

  • Incorrect tax treatment can significantly reduce the net value of a settlement

 


 

Is a Settlement Agreement Negotiable?

Yes — most settlement offers are negotiable, especially where:

  • The employee has a credible legal claim

  • Tribunal compensation could exceed the offer

  • The employer wants a quick and confidential resolution

Legal advice often helps secure a higher settlement figure.

 


 

Conclusion

There is no “standard” settlement agreement payout, but in practice:

  • £2,000–£10,000 → low-risk cases

  • £10,000–£30,000 → most common

  • £30,000+ → strong claims or senior roles

Each case depends on legal risk, evidence, and negotiation strategy.

Need advice?

Solidaire Solicitors specialise in reviewing and negotiating settlement agreements, often at no cost to the employee. If you have been offered one, seeking early advice can make a significant difference to the outcome.

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