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PENP; what is it?
Website Editor • July 10, 2019
It’s now just over a year since the Government introduced Post Employment Notice Pay (PENP).
We’re still regularly seeing settlement agreements that have not been updated to reflect the law. If your settlement agreement hasn’t been professionally drafted then it may not accurately reflect the structure of the payments, which could have adverse tax consequences for you.
This is possibly one of the most convoluted pieces of tax law that us poor employment solicitors need to grapple with. The Government’s way of explaining it seems back-to-front but can be accessed here https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim12810
Essentially, you need to ensure that all payments of wages are taxed. This includes any notice pay, including, any notice that is paid after your employment has ended (hence PENP). Previously, people tried to claim that payments in lieu of notice could be paid free of income tax, but the change in law has stopped this.
Only once all your contractual elements (salary, notice, holiday pay, bonus) have been paid and taxed can you then access the tax-free amount where up to £30,000 can be paid free from tax and NIC.
While we’re not tax experts, we are very familiar with the structure your settlement agreement should take and how exposed you might be. Don’t forget the dreaded tax indemnity, which make you liable for any further payments of tax and NIC, as we explain at point 2 in the following section of our web site https://www.settlementagreementssurrey.co.uk/what-are-the-important-clauses-in-my-settlement-agreement.
If any of the issues are of concern to you, you can contact one of our specialist settlement agreement solicitors on 01483 388 904 or hello@kilgannonlaw.co.uk
When presented with a settlement agreement, most people have not had time to secure a new role. If so, this clause can be accepted without worry. However, if negotiations are protracted or the timing works to your favour and you have secured another role or an offer, this clause will give you some cause for concern. The reason it’s included is because your employer wants to know it’s not paying you unnecessarily. If you pursue a claim the Employment Tribunal will award compensation based on your actual losses. If you have a new job then your loss of income is likely to be very low, if anything at all. Therefore, if your employer knows you have a new job, it may reduce or withdraw its offer, as its risk has significantly reduced. If you are in a situation where this clause appears and you have another job or offer, you probably have two options: 1 Accept the clause / say nothing This involves not telling your employer about the offer/new job. However, adopting this approach means you will be in breach of the settlement agreement immediately you sign it. Provided your current employer doesn’t find out (for example by being sent a reference request), you may be fine, but it’s not something we can guarantee. If your new employer finds out or later suspects that you are in breach, it may well seek recovery of its losses from you, and may require you to provide evidence to support when you were offered the new job. 2 Negotiate This usually means asking for the clause to be removed, as watering it down rarely works. However, even by asking for it to be removed, may raise suspicion from your employer and result in difficulties for you. While honesty is usually the best policy, being honest in this situation may well see your offer diminish or negotiations become more difficult, as it puts your employer in a much stronger negotiating position. We have various tactics to try and deal with this situation so if this is a position in which you find yourself, then do contact us for specialist advice. If any of the issues are of concern to you, you can contact one of our specialist settlement agreement solicitors on 01483 388 904 or hello@kilgannonlaw.co.uk
1. It’s the Law. For an agreement to be legally binding, you must have received advice from a solicitor. The last thing you want is your former employer challenging the validity of the agreement because it hasn’t been properly signed off, as this could affect your entitlement to any termination payment. 2. Knowing your rights You might not have thought of all the potential claims that you could have or even be aware that you have them. For example, it is a common misconception that employees don’t have any rights until they have two years’ service but many rights start from day one. Our job is to make sure that you are being properly compensated for giving up those rights. Seek advice from reputable solicitor like Kilgannon & Partners LLP rather than a high street practitioner for the latest employment law knowledge. 3. Negotiation Clients often come to us with a settlement agreement that is their company’s first offer. We are experienced negotiators and will guide you (when appropriate) in making counter offers and putting your case to your employer to get you the best possible outcome. 4. Getting the best advice We will give you great advice for your situation, we have your best interests at heart. Sometimes advice can become blurred by family and friends but you are our top priority and we will help you to achieve your desired outcome. 5. You may not have to pay any legal costs yourself Legal costs can be daunting, but in most cases, your employer will pay or at least contribute towards your legal costs. We will be transparent about likely costs from the outset and will usually be able to advise you and sign off your agreement within the fee offered by your employer. Please contact Kilgannon & Partners LLP. We offer ‘virtual’ meetings so it is not necessary for you to come in person if you don’t have time or are not near to us. We will happily advise by phone, email and video calling to save your time and expenses. We will be happy to advise you at a time that suits you, including the evening or weekends. At Kilgannon & Partners LLP, we only practice in employment law and all our lawyers have over 14 years’ experience. Kilgannon & Partners LLP – Giving practical, prompt and professional advice is at the heart of what we do
The use of these non-disclosure agreements (NDAs) have recently come under fire, but little has changed in practice. NDAs usually seek to: 1. protect the employer’s confidential information – preventing you from using or disclosing it; and 2. prevent you from disclosing details about: a. the fact of the settlement agreement; b. the terms of the settlement agreement; and c. the circumstances leading up to your exit via a settlement agreement. In our experience, such clauses are common and have existed for many years (more years than we care to remember, in fact!). However, the issue has come about because such NDA clauses have been used as ‘gagging clauses’ to prevent employees from disclosing incidents of sexual harassment (and the same issues would apply for other strands of harassment under the Equality Act; race, religion, disability etc). This is largely following on from #metoo and the President’s Club where it’s said that overly onerous NDAs were used to suppress the allegations. In most situations (i.e. those that don’t involve allegations of harassment, in particular, against high profile people), the use of NDAs is probably uncontroversial. The employer will want to know that all allegations and issues are settled and that other employees do not find out about pay-offs to avoid opening the flood gates. Even if used, there are limitations with NDAs. They cannot, for example, stop you from making ‘protected disclosures’ (aka whistle blowing) nor can they stop you from disclosing information where required by law (e.g. if you are required to give evidence in Court). Both basic exemptions should be specified in your settlement agreement. There may be other, limited, ways in which the NDA can be avoided, but specialist advice should be sought before any disclosure is made by you to avoid allegations against that you have acted in breach of your settlement agreement. If any of the issues are of concern to you, you can contact one of our specialist settlement agreement solicitors on 01483 388 904 or hello@kilgannonlaw.co.uk
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