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compromise agreement

Summary of postings

compromise agreement	Guest1	13 Mar 08
Re: compromise agreement	Adrian Dobson	14 Mar 08

Details of postings

compromise agreement	Guest1	13/03/2008 13:13
I have resigned and have 3 months notice to work. My employer doesnt want to pay the full 3 months and has suggested that we use a compromise agreement where he will pay me my full three months net salary and let me go straight away because he can save money by making my total payment up with the tax and NI savings. (Hope that makes sense) - is this right?

+ Re: compromise agreement	Adrian Dobson	14/03/2008 13:50	adriandobson@ pds-hr com
Guest1, Sorry to hear that you have resigned. I'm not sure why your firm wants to use a Compromise Agreement really - only tend to use these where there has been a breach of contract and the company wants to give you a payment as compensation, which is usually notice plus a little, and stop you from taking action against them. There are still ways round compromise agreements in any case. I'm not sure what the breach has been here - you have resigned and willing to work your notice and want the money as per your contract. Unless as they want to pay you the notice and they don’t have a PILON clause (payment in lieu) - which is then a breach. Yes they can pay your notice and with the tax and NI added in - but you need to be very careful. Any amount under £30,000 paid as redundancy or compensation may be exempt from tax. Redundancy is pretty much always the case, but its the compensation that’s the problem. HMRC look very closely at these agreements and if they find that the compensation is just the notice payment, which you are entitled to as part of your contract, they may deem that this is not compensation and therefore, there is Income tax, NI, and Employers NI payable on that amount and you will be liable to pay the employees side. (Its happened to me) I would say yes not a problem to agree to it, but see if the they will make it more than your three months notice in some shape or form - so the amount does not add up to exactly the notice period - this will give you a little more protection. And remember your not the one that wants to leave early, they want you to so, then need to make sure its worth your while, and just adding back the tax is not enough, given the risk that HMRC may come after you and the company. Any compromise agreement worth its salt will have a tax clause in it, that states if the HMRC do deem it to be a taxable payment - then its your responsibility not the companies to pay!!! Not a problem really, but just make sure you get what you want from the deal and its not all one-sided and the risk to you is mitigated. Good luck. Adrian Dobson PDS-HR.com