Typically employers are paying Severance Compensation as follows:

•  The employer will on its own behalf, and on behalf of all its associated companies, without any admission of liability whatsoever pay the employee £[anything up to 12/18 months salary] as compensation for loss of employment and in respect of the employee claims, less such deductions for tax and employee National Insurance contributions as are required by law.  This compensation is inclusive of a statutory redundancy payment of £[minimum statutory payment]calculated as follows:  £380 gross weeks’ pay x [number of years] complete years’ service x [x] age multiplier.
•  In addition, the employer shall pay the employee the sum of £[contractual notice period] in lieu of  the employee’s contractual notice period, less normal deductions for tax and National Insurance contributions.

If you require further information please contact us at enquiries@rtcooperssolicitors.com or visit one of the following pages on employment law:

•  http://www.rtcoopers.com/practice_employment.php
•  http://www.rtcoopers.com/faq-redundancyemployee.php
•  http://www.employmentlawyersinlondon.com/video.php
•   http://www.employmentlawyersinlondon.com

© RT COOPERS, 2010. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

In this case of Clinton v HMRC [2010], an employer sought to terminate the employment of an employee and the employee sought to bring a claim for constructive dismissal against the employer. The employer paid the employee a ‘termination payment’ sum substantially the same as the employee’s entitlement by way of payment in lieu of notice (PILON). It was deemed by the Tax Chamber First Tier Tribunal (of the HMRC) that the payment was not made pursuant to a contractual entitlement but rather to extinguish the employee’s claim for constructive dismissal.

The significance of this decision was that the first £30,000.00 of the termination payment was therefore tax free, and the entire amount exempt from National Insurance contributions. The drafting of the PILON clause in this case is what caused much of the dispute.

It is important that PILON clauses in employment contracts are appropriately worded so as to ensure there is no discrepancy at such time as an employee leaves an employer’s employment.

If you require further information please contact us at enquiries@rtcooperssolicitors.com or visit one of the following pages:

•  http://www.rtcoopers.com/practice_employment.php
•  http://www.rtcoopers.com/faq-redundancyemployee.php
•  http://www.employmentlawyersinlondon.com/video.php
•   http://www.employmentlawyersinlondon.com
•  http://www.adviceoncompromiseagreements.com .

© RT COOPERS, 2010. This Briefing Note does not provide a comprehensive or complete statement of the law relating to the issues discussed nor does it constitute legal advice. It is intended only to highlight general issues. Specialist legal advice should always be sought in relation to particular circumstances.

• Except in respect of income tax or employee’s National Insurance contributions deducted by the Employer, the Employee undertake to be, responsible for any income tax, employee’s National Insurance contributions, fines, interest, costs and/or penalties arising in respect of all and any of the payments made and benefits provided under this Agreement (”Tax Liability”) including, for the avoidance of doubt any Tax Liability on the first £30,000 of the Compensation Payment and Employee indemnify and will keep indemnified the Employer and any companies associated withthe Employer  against any claim or demand which is made against the Employer  or any  companies associated withthe Employer in respect of any such Tax Liability.  The Employee undertake immediately to pay to the Employer on demand any such Tax Liability.

You have received independent legal advice on all and any claims that you might be able to bring against your Employer in the Employer Tribunal and the High Court/County Court in respect of your employment and termination of employment.

You further warrant you have reviewed such claims with the Independent Adviser and been advised upon the possibility of pursuing such claims and you waive your rights to pursue such claims, including but not limited to any claim for:

• breach of the Working Time Regulations 1998;
• any complaint under the Transfer of Undertakings (Protection of Employment) Regulations 2006 and/or the Trade Union and Labour Relations (Consolidation) Act 1992;
• breach of any Additional Salary Reward, bonus or deferred compensation schemes or any long term incentive plan held by the Employee ;  and
• breach of the National Minimum Wage Act 1998;
  

In some cases, employees have received a year’s salary in lieu of notice. As always, this salary will be subject to the appropriate deductions of tax and National Insurance contributions (based upon the salary rates current at the time of notice).