National Insurance on Redundancy and garden leave

[Rubels]

Hi
My husband is finishing at the company where he has worked for 35 years. He is being offered a ‘settlement agreement ‘ which includes benefits and bonus. However, it’s not a penny over the capped amount he is due. In fact HR keep saying how he isn’t necessarily entitled to the bonus but will add in a payment to reflect that as goodwill. When I’ve been going through the figures I’ve read that on redundancy payments NIC is not due..well it is but only on PILON and PILOB. My very crude workings calculate that even with the bonus , the settlement really doesn’t come in at much more than the redundancy package if NIC isn’t due. So we are wonder whether to reject the settlement and go for redundancy as it may play out a bit longer and he would still be getting paid. Can anyone clarify whether NIC is due on redundancy and also if Garden Leave is part of the 16 weeks notice period. It is so confusing. Thanks

Termination payments are not subject to tax and NI up to a limit of £30k, and that is the case whether the payment is redundancy in the normal way, or whether a settlement agreement is involved. I would expect the settlement agreement to be clear on this, and to specify how much of the payment offered is redundancy pay. Is it not stated in the agreement?

It should make no difference to the tax position whether he takes the settlement or just is made redundant without the bonus.

Regarding garden leave and notice, again it should be clear in the agreement about his notice period and garden leave. Has he actually been given notice yet? If not, his notice period hasn’t started.

Has your DH instructed a solicitor to review the draft agreement? His employer should have confirmed that they will fund that.

Thanks flowery. Yes we have a solicitor but have been waiting for a sensible settlement offer before engaging him. Do you know if NIC is paid on the rest of the redundancy? I know tax is the same be it settlement or redundancy, but I’ve read that NIC is different and not due if it’s redundancy but is due if it’s settlement.
He isn’t on notice yet as he hasn’t accepted or signed anything.

NIC are not currently payable in respect of termination payments, even over £30k, but again, whether the termination payment is made with or without a settlement agreement won’t change this.

A solicitor will be able to advise him whether this is a ‘sensible’ settlement offer or not. If the questions you are asking here are really not covered in the draft agreement, the solicitor should sort that out. I’m not sure why your DH would wait to instruct the solicitor, given the employer is paying for it?

Why do you think this might not be a ‘sensible’ offer? Does your DH think the redundancy isn’t genuine?

It’s because the settlement is more or less the same as the redundancy package and in theory the settlement should be an incentive to sign and exit early...because of course it has clauses added around not tak8ng the company to court etc ( I cannot remember exact terminology) .so therefore a better offer than the redundancy which dies not give the company the protection of the clauses.
The settlement offer only came in on Friday evening ...and a teleconference has been scheduled for Monday to run through this with HR..so although the solicitor has been identified to work on my husbands behalf he has not yet been instructed because the company would like to secure this deal this coming week and my husband is awaiting a counter offer in view of the fact that the current offer isn’t any more than redundancy.

Plus the company will only pay so much towards solicitor fees...So we need to be at a point that we are taken the financial deal that we want to him before the clock starts ticking.

Yes I know how settlement agreements work thanks.

I thought you said there was a bonus he would only get if he signed rather than being made redundant?

Whether it’s a sensible offer depends on what their legal vulnerability is. If they can easily make him redundant legally, there’s very little incentive for them to offer very much over and above statutory redundancy pay. So the offer might be perfectly ‘sensible’.

My advice stands that your husband should instruct the solicitor to review the agreement, as the solicitor will be able to advise on how realistic the offer is, and on grounds for negotiation.

Thanks flowery. The bonus is another of those grey areas in respect of redundancy rather than settlement . It’s the end of the year, appraisal excellent etc. Bonus usually pays out mid year. However , the settlement offer with ex gratia bonus isn’t much more than the redundancy without a bonus. Anyway, we will be consulting the solicitor tomorrow. Thanks for the input.