Accountancy firm Baker Tilly is warning that proposed changes to termination payments to staff could end up being expensive for employers, and risk many more being caught up in the employment tribunal process.
Currently, termination payments can be a useful tool for employers in cases where staff are required to leave in cases other than redundancy – for instance where a contract is ending, where a role no longer exists, or where an employee has performance issues.
These payments can be tax-free up to £30,000 for employees, with employers also avoiding paying the 13.8% National Insurance contribution (NI). This £30,000 exemption makes it easier for employers and employees to negotiate an amicable split, with the employee receiving a tax-free sum, and the employer not required to go through the formalities of a redundancy or disciplinary process. Such settlements have recently been approved under the Employment Rights Act.