Who pays, and how much?
A settlement agreement is only binding once you have taken independent legal advice, so the fee is unavoidable, but it is almost always your employer who pays it. The customary contribution is £250 to £500 plus VAT, paid directly to your solicitor, and for a plain advise-and-sign agreement that normally covers the whole cost. You typically pay nothing. A fee above the contribution arises only where the terms are negotiated or the case is complex.
Employer contribution
£250-£500 +VATWhat you pay
£0 (standard case)Legal advice
Required by lawTax-free payment
Up to £30,000A settlement agreement was called a compromise agreement before July 2013. It is a contract in which you agree not to bring specified employment claims, usually in exchange for a payment.
Why the law makes you take advice
You cannot validly sign away statutory employment claims (such as unfair dismissal or discrimination) unless you have first taken advice from a relevant independent adviser, usually a qualified solicitor, on the terms and effect of the agreement and its effect on your ability to bring a tribunal claim. The adviser must carry professional indemnity insurance and must be named in the agreement.
These conditions come from section 203 of the Employment Rights Act 1996 and the matching provisions in the Equality Act 2010 and other employment statutes. Without that advice, the waiver of your claims is not effective, which is exactly why employers fund it.
What the legal advice actually costs
| Situation | Typical solicitor fee | Who pays |
|---|
| Straightforward review and sign | £250-£500 +VAT | Employer contribution, normally in full |
| Some negotiation of terms | £750-£1,500 +VAT | Employer contribution, plus any excess from you |
| Complex or disputed exit | £1,500+ or hourly | You, unless the employer agrees more |
| Typical out-of-pocket cost to you | £0 | Standard advise-and-sign case |
The fees above are typical 2026 market brackets for advice on a settlement agreement and are set by each firm, not a fixed tariff. The employer contribution is a customary practice, not a legal entitlement; always confirm the figure in writing before you instruct.
The employer contribution and what it covers
Advise and sign
Your solicitor reads the agreement, explains the terms and the claims you are giving up, confirms the numbers add up and signs the adviser's certificate. This usually takes an hour or two and fits inside the employer contribution, so you pay nothing.
Cost to you: normally £0.
Negotiate the deal
If you want the solicitor to push for a better payment, a reference or changes to the terms, that is extra work beyond the review. The employer contribution rarely covers it, so agree a fixed fee or an hourly rate and a cost cap first, and weigh the likely uplift against the extra fee.
Cost to you: the excess over the contribution.
How the payment is taxed
The headline number in a settlement agreement is not all treated the same way by HMRC. The tax treatment turns on what each part of the payment is for:
Ex-gratia compensation for loss of employment
Tax-free up to £30,000 (combined with statutory redundancy)
Statutory redundancy pay
Counts toward the same £30,000 tax-free limit
Amount above £30,000
Taxable as income
Notice pay / payment in lieu of notice (PILON)
Taxed as earnings (all PILON taxable since April 2018)
Accrued holiday, bonus, commission
Taxed as normal earnings
Employer contribution to your legal fees
Tax-free if paid directly to the solicitor under the agreement
The £30,000 exemption is set by section 403 of the Income Tax (Earnings and Pensions) Act 2003 and applies to genuine termination payments. Your solicitor should check the split before you sign, because the way a payment is labelled changes the tax.
Worked example: a standard exit package
£15,000 ex-gratia payment, straightforward agreement, solicitor reviews and signs
Solicitor fee for the review£400 +VAT
Employer contribution (paid to the solicitor)£400 +VAT
Cost to you for the advice£0
Tax on the £15,000 (under the £30,000 limit)£0
Net payment you receive£15,000
Illustrative. Any notice pay or holiday in the same package is taxed as earnings on top, and a payment over £30,000 would be partly taxable. Get your own written advice before signing.
Find an adviser
Any solicitor advising you must be a relevant independent adviser with professional indemnity insurance. Our register lists 8,846 SRA-authorised firms across 307 districts, so you can check a firm is on the SRA record before you instruct. Many firms offer a fixed-fee settlement agreement review geared to the employer contribution.
Settlement agreement cost FAQs
How much does a solicitor charge for a settlement agreement?
For a straightforward settlement agreement in 2026, a solicitor typically charges £250 to £500 plus VAT to advise you on the terms and sign the adviser's certificate. In most cases your employer pays this as a contribution directly to the solicitor, so you pay nothing. If your solicitor has to negotiate the terms or the exit is disputed, the fee rises, often to £750 to £1,500 or more, and you may have to pay the part the employer's contribution does not cover.
Do I have to pay for a settlement agreement solicitor?
Usually not. Employers customarily pay a contribution of £250 to £500 plus VAT toward your legal advice, paid directly to your solicitor, and for a plain advise-and-sign agreement that contribution normally covers the whole fee. It is a customary practice rather than a strict legal duty, but because the agreement is only binding once you have taken independent legal advice, employers almost always fund it so the deal can complete. Confirm the solicitor's total fee, and how much the employer will contribute, before you instruct.
Do I need a solicitor for a settlement agreement?
Yes. A settlement agreement is only legally binding if you have received advice from a relevant independent adviser, such as a qualified solicitor, on the terms and effect of the agreement, in particular its effect on your ability to bring a claim before an employment tribunal. The adviser must have professional indemnity insurance and must be named in the agreement. These conditions come from section 203 of the Employment Rights Act 1996 and the equivalent provisions in the discrimination and other employment statutes. You cannot validly waive your statutory employment claims without that advice.
Does my employer have to pay my legal fees for a settlement agreement?
There is no law forcing an employer to pay your legal fees. In practice almost every employer contributes, because the agreement they want you to sign is not binding until you have taken independent legal advice, so funding that advice is how they get a valid agreement. The contribution is normally £250 to £500 plus VAT for a straightforward case and is paid directly to your solicitor. If negotiation is needed the employer may agree to increase the contribution, but is not obliged to; anything above the contribution is down to you and your solicitor.
Is a settlement agreement payment taxable?
The first £30,000 of a genuine termination payment, such as an ex-gratia compensation payment for loss of employment plus any statutory redundancy pay, can normally be paid free of income tax and National Insurance under section 403 of the Income Tax (Earnings and Pensions) Act 2003. Anything above £30,000 is taxable. Other parts of your package are taxed as normal earnings: notice pay (all payment in lieu of notice is taxable since April 2018), holiday pay, bonuses and commission. An employer contribution to your legal fees, paid directly to the solicitor under the agreement, is itself tax-free.
What happens if the employer's contribution does not cover the solicitor's fee?
You pay the difference. If a solicitor charges £600 plus VAT and the employer contributes £350 plus VAT, you cover the remaining £250 plus VAT. This usually only arises where the agreement is complex or the terms are negotiated, because a straightforward review normally fits inside the standard contribution. Ask the solicitor for a fixed fee for the review, and ask your employer to confirm its contribution in writing, before any work starts so there are no surprises.