Settlement agreement for a small business making its first settlement

A small business ending someone's employment for the first time by agreement wants to know what a settlement agreement does, what the steps are, what it will cost beyond the money paid to the employee, what the owner should say and not say, what the employee's solicitor will do, and what happens after everyone has signed. The agreement I draft is the same document a large employer would use, and the note that comes with it is written for an owner who has not done this before and will do most of it personally. I draft the agreement and the note on the conversation for the employer, £795 fixed, three working days; adding the negotiation with the employee's adviser makes it £995.

Who this is for

Owners of small businesses in England and Wales facing their first agreed exit, whether because a role has not worked out, the business is changing or a relationship has broken down, who want the process explained as well as the document drafted.

What matters in a first settlement agreement

What a settlement agreement is and when a small business needs one

A settlement agreement is a contract in which the employee gives up the right to bring claims against the employer (unfair dismissal, discrimination, unpaid wages and the rest, listed specifically) in return for a payment and other terms, valid only if it meets the conditions in section 203 of the Employment Rights Act 1996 and section 147 of the Equality Act 2010, including that the employee has had independent legal advice; a small business needs one where it wants certainty that an exit will not come back as a claim, where the process to dismiss fairly would take longer than the business can bear, or where the employee has raised something (a complaint, a health issue, a disagreement) that makes a dismissal risky; where none of that applies, a dismissal with a fair process may be enough, and the note says which.

The sequence from decision to signed agreement

The sequence is: the business decides what it wants (the leaving date, the payment it can afford, the reference) and sends me the facts; I draft the agreement and the note in three working days; the owner has the conversation with the employee in the way the note describes and hands over the written offer; the employee takes it to a solicitor (usually within a week or two, with the Acas Code's ten days as the minimum); the solicitor comes back with amendments, which the fixed fee covers for one round (the negotiation service covers more); the agreement is signed by the employee, the solicitor signs the certificate, the employer signs, and the payments are made on the dates the agreement sets; the note sets out each step with who does what.

What it costs beyond the payment to the employee

Beyond the settlement payment itself (notice, holiday and a compensation sum), the employer usually contributes to the employee's legal fees for advice on the agreement (a few hundred pounds is common for an ordinary agreement, paid direct to the adviser and exempt from tax under section 413A of the Income Tax (Earnings and Pensions) Act 2003), pays employer's national insurance on any earnings elements and on compensation above thirty thousand pounds, and pays my fixed fee; the note explains the tax treatment of each element (compensation within the thirty thousand pound exemption under section 403 of that Act, notice pay taxed as earnings under section 402B) so that the owner can budget the whole cost and the accountants can confirm the payroll treatment.

The conversation and what the owner says

The owner opens the conversation in the way the note describes: in a protected conversation under section 111A of the Employment Rights Act 1996 where the only claim in prospect is ordinary unfair dismissal, or without prejudice where the employee has raised a dispute, explaining that the business is proposing an agreed exit, what the offer is, that the employee should take independent advice at the business's expense, and that they have a reasonable time to decide; the note lists what not to say (that the employee will be dismissed anyway, that the offer is only open today, anything about the employee's protected characteristics or complaints), because the conversation is protected only if there is no improper behaviour, and a small business owner speaking from frustration can lose the protection in a sentence.

The employee's adviser and what they will do

The employee's solicitor will check the agreement against the statutory conditions, explain the waiver, usually ask for a few changes (a higher payment, a better reference, softer confidentiality, a longer time to pay, a clause about the employee's own property), and sign the certificate once the employee is content; the owner should expect the request for changes as part of the process rather than as a rejection, should refer the adviser's letter to me for the one round of amendments the fee covers, and should not negotiate directly with the adviser, because an owner who agrees a change on the phone has agreed it; the note explains what is usual and what would be unreasonable.

After signing: payroll, the reference and the record

After signing, the payments go through payroll with the tax treatment the agreement records (the accountants or the payroll provider apply it), the employee receives their final payslip and tax documentation, the agreed reference is kept on file and used for every enquiry, the employee's access and property are dealt with as the agreement provides, the record of the settlement is kept confidentially, and the business reviews what the exit taught it (a probation process, a contract term, a handbook policy that was missing); the note closes with a checklist for the week after signing, because the agreement is only the middle of the process.

What it costs

Settlement agreement, £795. Drafted for your situation, with a note on how to have the conversation. Three working days.

Settlement agreement including reasonable negotiation with the employee's adviser, £995. The agreement in three working days. The negotiation then runs until the agreement is signed or it becomes clear it will not settle. Reasonable negotiation means what, in my experience, amounts to the standard back and forth on a settlement agreement. If the employee or their adviser is being unreasonable, for example by conducting themselves unprofessionally or requiring a substantial rewrite that needs material further legal advice to you, I will flag it and we will discuss how best to proceed, which may involve further fixed-fee work. That would be unusual.

Buying online forms the engagement on payment. The scope is what the settlement agreements for employers page describes, you accept the Terms of Service at checkout, and I email you within four working hours to get started. If you would rather ask something first, email me.

What you get

• A bespoke settlement agreement drafted for the exit you are dealing with
• Proper waiver of the relevant statutory claims, so the agreement does what you are paying for
• Advice on the tax treatment, including the £30,000 exemption and what falls outside it
• Confidentiality, non-derogatory statements and an agreed reference
• Reaffirmation or replacement of restrictive covenants, which is often the real value
• A short note on how to open the conversation and keep it without prejudice or protected
• One round of amendments after the employee's adviser responds

What is not included

• Advising the employee, which their own adviser must do independently for the agreement to be valid
• Tribunal representation if the matter does not settle
• Payroll processing of the settlement sums
• Handling the settlement payment, since I do not hold client money

Questions I am often asked

We have never done this. What do we have to do?

Decide the leaving date, the payment and the reference, send me the facts, have the conversation the note describes, hand over the offer, let the employee take advice, refer any amendments to me, sign, and pay on the dates set. The note walks through each step.

How much will the whole thing cost us?

The settlement payment, a contribution to the employee's legal fees, employer's national insurance on the earnings elements and on compensation above thirty thousand pounds, and my fixed fee. The note sets out the tax treatment so that the owner can budget the total.

Can I negotiate directly with the employee's solicitor?

Better not: an owner who agrees a change on the phone has agreed it. Refer the adviser's letter to me for the round of amendments the fee covers, or use the negotiation service where the back and forth will be longer.

Related guidance and services

• Settlement agreements for employers, £795, the service this page describes
• Employment contracts and handbooks, £595
• Shareholders agreement, £995
• Protected conversations before a settlement
• Settlement agreement and the employee's independent adviser

This page is general guidance for businesses in England and Wales, not advice on your own circumstances. Last reviewed: October 2026. Email geoffrey@caesar.co.uk.