Will a settlement agreement affect my benefits? - Paul Doran Law

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Will a settlement agreement affect my benefits?

Help! I’ve lost my job!

It can be a real worry when you’re not earning but still have bills to pay. If you’ve been forced to leave your job through redundancy or unfair / constructive dismissal, you can claim benefits while you’re looking for work.

You may be entitled to receive new-style Jobseekers’ Allowance (JSA). You might also quality for Universal Credit (UC) as well or instead.

However, if you’ve received a lump sum payment as part of a settlement agreement with your employer, you might be wondering how it affects your right to claim these benefits.

This article explains more…

What is Job Seeker’s Allowance?

JSA is an unemployment benefit you can claim while looking for work.

You may have to wait up to 7 days after applying for your JSA to start, and up to 2 weeks after that to get your first payment. Your first payment may not be for the full amount.

After your first payment, full payments will usually be made fortnightly directly into your bank, building society or credit union account.

If you are no longer looking for work (unless there’s a good reason), your JSA payments will stop.

How much JSA will I get?

The amount of JSA you’re entitled to claim depends on your age, income, savings, and any other benefits you may receive:

(Figures valid 2023/24)

As with many benefits, the situation is more complicated than that. For example, there are three different types of JSA.

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Job seeker

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Which type of JSA will I get?

Most people can claim the ‘new style’ JSA for up to 182 days. Can you answer ‘yes’ to all these questions?

Note that, if you have a partner who has income and savings, it doesn’t affect your JSA claim.

One more question…

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What is Universal Credit?

Universal Credit is a payment to help with living costs for people who are out of work or on a low income. It’s paid monthly (or twice a month for some people in Scotland and Northern Ireland).

You might be entitled to receive UK as well – or instead of – ‘new style’ JSA.

What if I apply for Universal Credit?

Can you answer ‘yes’ to all these questions? If yes, you might be eligible for Universal Credit.

Note that, if you live with a partner who has income and savings, this WILL affect your claim for Universal Credit (unlike JSA above).


Paul DoranAbout us: At Paul Doran Law, we specialise in employment law – this includes settlement and severance matters as well as claims about equal pay, discrimination, unfair or constructive dismissal, and unpaid wages or holiday pay.

We’re on your side: We only act for employees who find themselves in a dispute with their employers.

About you: Whether you work for a multi-national corporation, public sector, private sector or small employer, we can help. We act for clients in Northern Ireland, England, Wales and Scotland.

Easy payment options: You’ll have a choice of ways to fund your claim, including no-win, no-fee. Often, your employer will pay our fee.

What next: Give us a call today for friendly, clear and honest advice about your case. The initial consultation is FREE and with no obligation.


How much Universal Credit will I get?

Universal Credit is based on your earnings. It’s assessed and paid monthly (sometimes twice a month in Scotland and Northern Ireland), so the amount you receive can vary.

It comprises a standard allowance:

(Figures valid for 2023/24)

You may receive extra payments if you:

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Family

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Means-tested benefits

If you’re paid a lump sum in the form of a negotiated settlement, it might affect your entitlement to means-tested benefits, such as:

Your entitlement to these benefits will not be affected you or your partner have £6,000 or less in savings after the lump sum is paid.

If you or your partner have between £6,001 and £16,000 in savings after the lump sum has been paid, the first £6,000 is ignored. The rest is treated as if it gives you a monthly income of £4.35 for each £250 or part of £250.

If you or your partner have over £16,000 in savings once the lump sum has been paid, you will not be entitled to any of the means-tested benefits until your savings drop below £16,000. However, you may still be entitled to non-means-tested benefits.

What is a settlement agreement?

The ‘settlement’ is the term for when a legal case is resolved, whether that happens before or after court action. Usually, it’s an amount of money that is to be paid to one party in return for agreeing to settle the dispute.

The ‘agreement’ part is the legal documents signed by both parties confirming what each party is agreeing to do.

In Northern Ireland, a settlement agreement is known as a ‘compromise agreement’ – that used to be the name in other parts of the UK too.

How are my benefits affected by my settlement agreement?

If you’ve been offered a settlement agreement by your employer in return for agreeing not to take them to the employment tribunal, they’ll pay you a lump sum that’s made up of two components.

The contractual element is the amount you are entitled to receive under your contract of employment. Usually, this is NOT taken into account by the DWP when they calculate your benefits.

The non-contractual element is anything you receive over and above the basic contractual payment, sometimes known as compensation. The DWP will treat this as savings, and WILL take it into account by when they calculate your benefits.

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!

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Signing

As you can no doubt tell, it’s a complex area and we can’t explain all the options here. So, if you’ve been offered a settlement agreement and you are unsure what to do, please give us a call to discuss your specific circumstances.

Further reading

For more information, please see our related articles:

These links tell you more about some of the most common scenarios, and we hope you find our information useful. But every situation is different, so do give us a call to discuss your own case. We’ll be happy to help. Remember, the initial conversation is free, with no obligation to proceed.

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