Is My Settlement Offer Good? Compare the Money, Tax and Terms

This article is for you if:

• You have been offered a lump sum to leave your job.

• You are comparing an offer described as three, six or twelve months’ salary.

• You need to know what is already owed, what is genuinely extra, and what still binds you afterwards.

Quick answer: there is no standard “good” number. Six months can be generous, ordinary or poor depending on notice, holiday, bonus, benefits, likely time out of work and the claims being waived. Convert the headline into a net settlement premium and a realistic runway.

Split the offer before judging it

Acas’s template guidance separates ordinary termination payments from the settlement payment for claims. Do the same in a spreadsheet. Record gross amount, expected deductions, payment date, clause and evidence for every line.

Caira can read an uploaded settlement agreement, contract and payslips alongside an Excel comparison, then show which sums are already due and which depend on signing.

What do three, six or twelve months really mean?

An employee earning £36,000 is offered “three months”, or £9,000. But two months’ notice and £1,000 holiday pay are already due. The extra payment is closer to £2,000—not three months of new money.

Another employee earns £48,000. The offer contains £16,000 PILON and £24,000 compensation. The headline is ten months’ basic salary, but only the £24,000 is the settlement premium. Their health insurance ends immediately and a bonus is excluded. The package should be compared with net monthly spending, replacement benefits and likely job-search time, not gross salary alone.

A third employee earns £60,000 and receives £30,000 compensation, six months of continued medical cover, an agreed reference and removal of a six-month non-compete. That may be worth more than a larger cash-only offer. Conversely, twelve months’ salary may still be poor if it absorbs a long notice entitlement, substantial commission or a strong discrimination claim.

Use three comparisons:

1. Contractual floor: everything payable even without settlement.

2. Claim value: lost earnings, benefits and any compensation realistically in issue, adjusted for evidence, litigation risk and mitigation.

3. Personal runway: expected net receipt divided by essential monthly spending—not by gross monthly salary.

If the offer changes, Caira can compare the revised drafts line by line.

Build a range, not a magic number

Estimate how long replacing the job may take, then model net pay and benefits instead of multiplying salary by arbitrary months.

This is a resilience test, not a claim valuation. Adjust for interim earnings, pension contributions, medical cover, commission and replacing a company car. Keep assumptions visible so six months does not quietly become four after tax and benefits.

For ordinary unfair dismissal, the compensatory award is currently capped at the lower of 52 weeks’ gross pay or £123,543 where the April 2026 limits apply. That ceiling is not a prediction: awards turn on loss, evidence, mitigation, reductions and claim type. Discrimination compensation follows a different structure.

For discrimination claims presented from 6 April 2026, the judiciary’s Vento bands range from £1,300–£12,600 for less serious injury to feelings, £12,600–£37,700 for the middle band and £37,700–£62,900 for the most serious cases, with exceptional cases above that. They are not a settlement tariff and do not include lost earnings.

Tax can change the answer

The first £30,000 is not automatically tax-free. HMRC says wages, holiday, bonuses, restrictive-covenant payments and notice/PENP are normally taxable earnings. The first combined £30,000 of qualifying redundancy and genuine termination compensation may be tax-free. Ask for the agreement’s tax schedule and compare estimated net amounts.

Timing matters. A taxable payment after the P45 may use an 0T tax code, producing a different immediate deduction from the offer estimate. Record the gross amount, contractual label, proposed tax treatment and expected bank receipt separately. A tax indemnity may shift later HMRC risk back to you.

Then check payment dates, the attached reference, claims waived, document return, restrictions, no-rehire wording, cooperation duties, tax indemnities and breach. The waiver should identify the particular claims settled; “all claims” alone is not enough to waive statutory employment claims. Check whether legal fees are separate and whether payment depends on property return or another condition.

Use our NDA guide for confidentiality and non-disparagement. Most tribunal claims have a time limit of three months minus one day; negotiation does not itself stop the clock. Acas recommends at least ten calendar days to consider formal written terms.

Caira can turn the final draft into an easy-to-understand checklist and recalculate an amended offer. The 14-day trial is free; plans then start at about £15 a month.

Questions people often hesitate to ask

Is six months’ salary good?

Only after removing notice, holiday, redundancy and other existing entitlements. Compare the remaining premium with net runway and the rights released.

Can I ask for more than money?

Yes. Reference wording, benefits, payment timing, restrictive-covenant changes and an agreed announcement can materially change value.

Can I change my mind after signing?

Usually not simply because you regret the bargain. A valid settlement is a contract and usually waives the particular claims identified.

What if the employer pays late?

Check whether the agreement states a fixed date, interest, enforcement costs and which obligations survive non-payment. Preserve the signed agreement and bank evidence.

This article is general information, not legal, financial, tax or medical advice.