Settlement Agreement Fees and Costs

How much does a settlement agreement cost?

If you have been offered a settlement agreement by your employer, you might be wondering how much you will have to pay for legal advice. The good news is it usually won’t cost you a penny. That’s because your employer will normally cover your settlement agreement solicitor’s costs.

They do this because an employee must have independent legal advice before signing a settlement agreement or it won’t be valid. Your employer paying for your legal advice ensures this requirement is met, helping to get things sorted out as quickly as possible.

This means you don’t have to worry about any settlement agreement legal fees in most cases.

Who pays the legal fees for a settlement agreement?

As covered above, your employer will normally cover your legal fees for a settlement agreement to ensure you have independent legal advice as required under section 203 of the Employment Rights Act 1996.

The only time you might have to cover some of your legal fees is in the unlikely event that your employer’s contribution does not cover the full costs. However, in most cases, employers will want to meet the full cost to ensure the statutory requirement is met.

Typical employer contributions

How much an employer will contribute to an employee’s legal fees will depend on the circumstances. A typical range is from £350 plus VAT to £750 plus VAT but higher rates may apply for senior employees, complex exits or negotiated settlements.

Our settlement agreement solicitors will be happy to discuss likely costs with you and can negotiate with your employer where required to try to ensure they meet our full fees.

McCann’s fixed fee promise

We offer fixed fees for standard settlement agreement advice, working within your employer’s agreed contribution. This means there is usually nothing to pay for the majority of our clients.

We will only ever exceed the employer’s contribution if you have expressly agreed this with us in writing.

What the employer’s contribution covers

As standard, our fixed fee settlement agreement service includes:

Reviewing the draft agreement
Explaining the terms and their legal effect to you
Signing the solicitor’s certificate confirming that you have received independent legal advice (required to ensure the agreement is binding)
Answering basis follow-up questions

Please note: Our standard fixed fee service does not cover negotiations with your employer if this is required to secure a better agreement. However, your employer may agree to increase their contribution to cover such fees, depending on the circumstances.

When fees might exceed the employer’s contribution

There are two foreseeable situations where extra work may be needed, meaning our fees could potentially exceed your employer’s agreed contribution:

Where we need to negotiate an increased financial package or improved terms.
Where there are complex issues such as discrimination, whistleblowing, senior executive exits, restrictive covenants or share options to navigate.

Please be assured, we will always discuss any additional costs in advance in writing and many employers will increase their contribution if additional work is needed.

What if I don’t sign the agreement?

Your employer’s contribution to your legal fees is usually conditional on you signing a settlement agreement. If you decide not to sign, there may be a small charge for the advice you have already received. However, if negotiations are continuing with the hopes of securing an alternative agreement, most employers will still contribute.

We will discuss this with you during your free initial consultation and provide an indication of what charge you may need to pay if you ultimately decide not to sign.

Is a settlement agreement payment taxable?

In most cases, you won’t pay tax on any payment made as part of a settlement agreement on termination of employment. This is because the first £30,000 of a compensation payment is tax free. However, this does not apply to Payments in Lieu of Notice (PILON), outstanding holiday pay and bonuses, with these being taxed through PAYE as normal.

Frequently asked questions

How much will a settlement agreement cost me?

In most cases, you won’t need to pay anything to get a settlement agreement in place. Your employer will usually pay your settlement agreement solicitor’s costs directly under a standard legal fee contribution clause. This is because it is a legal requirement for you to have independent legal advice before signing, so it is in your employer’s interest to facilitate this.

How much do solicitors typically charge for a settlement agreement?

Solicitors’ fees for settlement agreement advice can vary considerably. Between £350 and £750 plus VAT is a fairly standard range, although this can be higher when dealing with more senior employees and highly complex situations. Our experts will work within your employer’s contribution wherever possible and will always advise on costs at the outset.

Does McCann Settlement Agreements offer a fixed fee?

Yes, for standard settlement agreement advice we offer a fixed fee capped at the employer’s contribution. This means you will not need to pay anything, unless unforeseen additional work is required and your employer will not cover any extra costs (although this rarely occurs).

What if my employer’s contribution isn’t enough to cover the work?

In exceptional cases, your employer’s contribution may not fully cover our settlement agreement solicitors’ fees. Where this is a possibility, we will always discuss any potential additional fee in advance, in writing. Where negotiation is needed before an agreement is signed, employers will often agree to a higher contribution. This is because it is generally in their best interests to get the settlement signed and resolve the matter as soon as possible.

Do I have to pay anything upfront?

No, we do not charge anything upfront for standard settlement agreement advice. We offer a free initial consultation and the rest of our fees will normally be covered by your employer once a settlement has been signed.

Will fees be deducted from my settlement payment?

No, we do not deduct fees from the settlement sum as standard. Usually, your employer will pay our fees directly. The only exception is if your employer’s contribution does not cover our whole fee, in which case, you may choose to pay the balance from your settlement. We will always advise if your fees are likely to exceed your employer’s agreed contribution, so you should never be hit with surprise costs once a settlement is agreed.

Is the £30,000 tax free rule still in place?

Yes, the first £30,000 of a compensation payment specified in a settlement agreement is still tax free under current HMRC rules, as long as the payment relates to a termination.

What happens to fees if I decide not to sign the agreement?

Normally, employer contributions for an employee’s legal costs are conditional on the employee signing a settlement agreement. If you decide not to sign, you may be charged a small amount for the advice already given. Our team will make this clear from the start, with an indication of what this fee might be, so you can make an informed decision.

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