Settlement Agreement | Rights With Benefits | Employment Law Solicitors |

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How does a settlement agreement affect your right to claim benefits?

So your employer has offered you a settlement agreement (or compromise agreement in Northern Ireland), sometimes called a severance package.

This means your employer will pay you a lump sum in return for giving up your right to take them to court or an employment tribunal.

Hoorah! At least you’ll have some money to help keep you going now that you are out of work.

But does this affect your entitlement to claim Job Seekers Allowance (JSA) while you search for another job?

With rising unemployment and greater competition in the search for jobs, there is no knowing how long it will take to find new employment.

“Completely professional, and secured a settlement beyond my expectations.” Joan W

How much is your settlement?

A settlement equivalent to up to six months’ pay is common, but the actual amount you get depends on:

The lump sum is made up of two components: contractual and non-contractual payments. The distinction is important from the point of view of HMRC and the Benefits Office. Read on to find out more…

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Contractual payments

This element includes payments you are entitled to under your contract of employment, such as:

 The Benefits Office usually discounts contractual payments when calculating your entitlement to JSA.

Non-contractual payments

This element includes anything your employer pays above what’s included in your contract of employment. It’s sometimes called ‘compensation for loss of office’, ‘in recognition of services rendered’ or ‘in recognition of past loyalty’.

The Benefits Office includes any compensation you receive in your ‘savings’.

Need help?

For a FREE assessment of your claim, call 0808 168 7288, email enquiries@pauldoranlaw.com, or fill in the contact form (top right).

Can you claim JSA during the period of notice? 

JSA is not usually paid during the period of notice.

If you are not required to work the notice period and your employer has paid you in lieu of notice, you will not be able to claim during that time.

However, it would be wise to sign on at the Job Centre, so you can claim NI Contribution Credits during the notice period.

How much capital do you have?

You can claim ‘income-based JSA’ if your savings – including your compensation payment – total less than £16,000 at the time your employment was terminated. Remember, the contractual element of your settlement payment is not included in this calculation.

Example: If you have no other savings and receive a settlement of £20,000 including £8,000 of contractual payments, that leaves £12,000. As it’s under the threshold, you will be entitled to claim income-based JSA.

“Very happy with results. Very grateful for all Paul and his team have done for me. I feel valued as a client, my questions were always answered very quickly. Thank you.” Anna V

Have you paid enough National Insurance (NI)?

If you have contributed a sufficient amount of NI throughout your working life, you can claim ‘contribution-based JSA’. In this case there is no savings limit, so it doesn’t matter how much money you have saved, or how much you receive under the settlement agreement.

NI is deducted at source from your salary every month. To find out whether you have paid enough NI, ask your local Benefits Office or Citizens Advice Bureau.

Did you leave your employment voluntarily?

JSA is not payable to people who leave their employment voluntarily.

If you have been offered a settlement agreement, this is not counted as a voluntary occurrence by the HMRC and Benefits Office, so you are entitled to claim JSA.

Disclaimer

The rules and regulations on benefit entitlements change constantly. For up-to-date advice, please contact your local Benefits Office or Job Centre adviser.

For help negotiating a settlement agreement with your employer, please contact us!

“My case was handled professionally and my solicitor was very understanding and quick to respond.”  Eleanor P

Need help?

For a FREE assessment of your claim, call 0808 168 7288, email enquiries@pauldoranlaw.com or fill in the contact form (top right).

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