Compensation for loss of office

Compensation for loss of office involves a situation in which an individual has left the employment of an organization and such actions has activated some compensatory payments, which could be either a cash payment (or equivalent) or non-cash benefits

In settlement agreements, payments not exceeding £30,000 for compensation for loss of office on genuine ex-gratia payments are free of tax and can be paid without tax being deducted given that the employee has no contractual rights to the payment and such payments are not in place of notice which stipulates to the parties involved in the agreement that the employer does not consider that they are under any duty to provide the payment
Notice payment
Generally, at the point in which an employee leaves the employment of an organization, they will continue working through the stipulated period of notice and be paid accordingly. For example, if an employee accepts a job with a new company, their old contract may state that they have to give their employer two weeks’ notice. In other words, they must continue to work for the employer for two weeks before they can leave, if they wish to receive the pay set out in their contract. Where an employee has no employment contract or such contract does not provide for payment in lieu of notice, the employer involved could pay your notice as a lump sum after tax deduction..

This also surrounds another basic quintessential where it is necessary that their services of an adviser is employed in which he/she assesses the settlement agreement in ensuring that the employee receive the maximum sum in this payment category as well as giving resonate advice as to the tax expectations where such notice payments come under the purview of the HMRC


Pension schemes differ and so do the rules that govern each pension scheme. However, it is imperative to note it is constant among these schemes that payments into one’s pension under a settlement agreement are not subject to tax. As such, if the settlement agreement provides that the employer is to pay a lump sum into the employee’s pension account, then such pension benefits would tax-free. Also, an employee cannot be compelled to waive his/her claims to accrued pension rights

Bonus and commission
These, mostly, has to be expressly provided for. In other words, the employee must have the provisions for entitlement to bonus and commissions stipulated in the agreement or expressed verbally and as a result, have a contractual right to such bonuses. While the legal adviser is checking through the employee’s settlement agreement, he/she must look out to ascertain that all contractual bonuses and commission which the employee is entitled are fully paid.

However, there could arise a few scenarios where there has been no agreement with regards to entitlements to such bonuses and commissions but the employer may agree to pay such a sum to the employee as part of the settlement packages with which the employee would agree to in place of waiving the rights to certain claims. It is key to note that commission payments are mostly contingent on proper expression of such entitlements in the settlement agreement

“If you are entitled to receive commission payments then your entitlement to such as well as the value of the commission payment you expect to receive should be recorded in the settlement agreement terms – a failure to include wording relating to such could preclude you from receiving such a payment if there is what is known as an ‘entire agreement’ clause in the settlement agreement ”
Medical and life insurance
This may vary according to the provisions of each scheme. A number of schemes accommodate the employee up until the end of the period up to which the payment the employer has paid would extend to. Others have fixed provisions for the medical/insurance scheme to be terminated on the end date of the employee’s term of employment. With this, it is often advisable that the employer inquire whether the scheme providers may offer enhanced terms beyond the termination of the employment.

You can call us on 0207 183 0084 or email us on employment for any queries about Settlement or Compromise Agreements . We are always happy to assist and can usually arrange appointments for Independent Legal Advice at short notice