How UK settlement agreements are structured
An ACAS settlement agreement is a legally binding contract under which an employee waives employment tribunal claims in exchange for a agreed severance payment.
Contractual earnings (notice pay under PENP rules and accrued holiday pay) are subject to normal tax and National Insurance, but the first £30,000 of qualifying redundancy and ex-gratia compensation is completely tax-free.
Worked example: 45-year-old manager
A 45-year-old employee with 8 years service earning £750 weekly (£700 capped statutory rate) with 8 weeks notice (£6,000), 6 days holiday (£900), and an £18,000 ex-gratia severance receives £8,050 statutory redundancy. The entire £26,050 termination package is tax-free under the £30,000 rule, yielding an estimated net take-home of £29,118 after £1,932 tax on notice and holiday pay.
Inputs for the acas settlement agreement calculator
Employee Age
Age at termination date to determine statutory redundancy multipliers.
Years of Service
Completed full years of continuous service (statutory cap is 20 years).
Gross Weekly Salary
Weekly salary before tax (statutory cap is £700/week for 2024/25).
Notice Weeks
Contractual or statutory notice period payable as earnings.
Accrued Holiday
Untaken statutory and contractual holiday days owed at termination.
Ex-Gratia Sum
Negotiated severance and compensation for loss of office.
CALCULATOR QUESTIONS
ACAS settlement agreement calculator questions
Is independent legal advice required for an ACAS settlement agreement?
Yes. Under Section 203 of the Employment Rights Act 1996, a settlement agreement is only legally valid if the employee receives independent legal advice, usually funded by the employer.
How much of a severance payout is tax-free in the UK?
Under Section 401 of ITEPA 2003, the first £30,000 of compensation for loss of employment and statutory redundancy is exempt from Income Tax and employee National Insurance.