Compromise Agreements

[Maroon Mayhem]

Does anyone have any employment legislation knowledge?

 

A friend of mine has been made redundant by an American company who have offered him a package where his serverance payment is tax free but his sales commssion and salary is subject to tax and NI.

 

Couldn't this be rolled into a compromise agreement and the whole payment be tax free?

 

Any advice appreciated

[John S]

Kinaro

 

While I'm not qualified to answer, I'd suggest that the offer as you have described is pretty standard. If the organisation has a TU side, you'd expect the reps to help out here with advice & guidance.

 

 

My understanding is that (in the UK) the first ?30K of a severance payment is tax exempt. Any payments due for work completed are of course subject to income tax and NI.

 

I am not familiar with the term 'compromise agreement', however, to get the total amount tax free, I'd guess the complany would have to agree to pick up the tab for the tax and NI which is properly due on the payment. That in effect would cost the comopany more money.

 

One final consideration is that NI contribtions are important, in terms of contributory welfare benefits and in the longer term, the state pension, your friend shoiuld be aware of this and as you indicate take advice from someone appropriately qualified .

[I P Knightley]

Does anyone have any employment legislation knowledge?

 

A friend of mine has been made redundant by an American company who have offered him a package where his serverance payment is tax free but his sales commssion and salary is subject to tax and NI.

 

Couldn't this be rolled into a compromise agreement and the whole payment be tax free?

 

Any advice appreciated

 

Tax legislation is independent of the compromise agreement.

 

The compromise agreement will outline the terms on which the employee agrees to depart (e.g. no competition/ no bad-mouthing/ timing of departure/ severance terms).

 

afterthought: your friend should get the company to pick up the bill for legal advice to clear up all these matters and approve the compromise agreement

 

I had a compromise that simply said I would be paid ?x in full & final settlement. Because it was ex gratia, I was entitled to ?30k tax-free and this was all worked out on the P45.

 

Any attempt to avoid tax by altering the wording of the remuneration would be illegal regardless of the circumstances of the payment being made.