What is an ex gratia payment?
What is an ex gratia-payment?
An ex gratia payment is an amount of money that you would receive by your employer as a termination payment when you have left your employment. Such a payment is over and above what you are entitled to be paid under your contract of employment, so for example, it would not include your notice or holiday pay.
An ex gratia payment therefore usually represents a “good will” sum without any obligation by your employer to pay this.
However in the context of disputes, such as claims for unfair dismissal, performance improvement plans, or discrimination, the payment may arise as a result of a negotiated settlement. In these circumstances, it would not, of course, originally have been contemplated by your employer.
Usually, especially against the backdrop of a dispute, you would be expected to sign a settlement agreement to receive the ex gratia payment. This is a document which makes it binding that in return for the payment, you will not bring any claim against your employer. Even where there is no dispute, your employer may ask you to sign a settlement agreements as a safeguard, for example, where enhanced redundancy payments are being made.
It is often highly tax efficient to receive an ex gratia payment, as the first £30k of any sum can be paid without deductions for tax or NI.
How easy is it to negotiate an ex gratia payment?
This will largely depend on the nature of your employment and/or any dispute that you have with your employer. You shouldn’t look at it as a entitlement, because this is not the case. There could be a moral case for such a payment or a legal case. Whilst we have negotiated tens of thousands of enhanced payments by departing employees and senior executives, we often have to point out that the moral case will never be platform for you to bring a claim. However, we have nevertheless negotiated extra payments in both cases.
The Inland Revenue have explained on their website how the tax treatments of ex gratia payments work, which you can access by clicking here.