September 5, 2023
An ex gratia payment refers to a payment received by an employee from their employer where they were not bound or under any duty to pay.
Am I Entitled to An Ex Gratia Payment?
There are a few reasons behind why an ex gratia payment would be offered. Normally given as a gesture of goodwill, employers offer them to employees where they recognise financial compensation needs to be given, such as for discrimination in the workplace.
If you receive a settlement agreement, you will commonly receive an ex gratia payment within this package as this is not a payment your employer is legally obliged to make. For example, in an unfair dismissal, a payment could be made as gesture of goodwill in order to avoid the employee suing their employer.
You are also entitled if you were made redundant; statutory redundancy pay and any lump sum may be presented as an ex gratia payment. Even if you have less than 2 years’ employment before redundancy, you are still able to receive an ex gratia payment. Why would employers pay a redundancy ex gratia payment? Because it helps bring employment to an end quickly and with minimum fuss, as well as avoids the risk of employment tribunals, which benefits both parties.
How Much Should I Receive?
There is no limit to how much you should receive in an ex gratia payment. However, there are some factors that come into play when deciding the amount employers will give. This includes their obligations to pay National Insurance and Income Tax on any payment over £30,000.
The majority of payments are equal to a month’s worth of pay, in order to support the employee while they find other employment. Also, once the payment has been accepted, you will be asked to sign a settlement agreement to confirm you will not bring any claims against your employer in the future.
Can I Negotiate?
As an ex gratia payment is not contractually obliged and paid out of goodwill, it is most likely non-negotiable. Grounds for negotiation depends on the specific nature of your employment and if there are any disputes which require negotiation to be made.
Is an Ex Gratia Payment Taxed in the UK?
Ex gratia payments are considered as non-contractual payments which means there is a tax break where National Insurance and Income Tax are not deductible if the amount is below £30,000. From April 2020, employers are required to pay National Insurance contributions on any part of termination payments that exceeds £30,000.
Also, if any element of the payment is used for contractual entitlement, for example lieu of notice pay or holiday pay, it will be subject to tax deductions. If your payment is below £30,000, at the end of the tax year, HMRC may ask you to declare it on a self-assessment form which includes a tick box marked “ex gratia”, so you are not taxed on it. To find out more about whether you’re entitled to an ex gratia payment and how we can help you, please get in touch with us at Premier Legal. If you can’t find the answers to your questions, please give us a call, drop us an email or visit our website.