Step 1: add up what you are owed anyway
These are yours whether or not you sign. List them first so you can see what the employer is really adding.
- Pay and benefits to the termination date.
- Notice. The longer of your contractual notice and the statutory minimum of one week per full year of service, up to 12 weeks. See notice pay.
- Accrued holiday not taken.
- Statutory redundancy pay if you are redundant with two years' service. See redundancy.
- Contractual bonus, commission and share awards. See bonus, shares and pension.
Step 2: identify the claims you would be giving up
The compensation should reflect the claims you could realistically bring.
| Claim | Who can bring it | What a tribunal can award |
|---|---|---|
| Ordinary unfair dismissal | Employees with two years' service (six months for dismissals from 1 January 2027) | Basic award up to £22,530 plus loss of earnings up to £123,543 or a year's pay |
| Discrimination or harassment | Employees, workers and applicants from day one | Uncapped loss of earnings plus injury to feelings of £1,300 to £62,900 |
| Whistleblowing dismissal or detriment | Workers from day one | Uncapped |
| Wrongful dismissal (unpaid notice) | Any employee | Your net notice pay and benefits |
| Unpaid wages, bonus or holiday | Any worker | The amount owed |
Step 3: value an unfair dismissal claim
A tribunal awards two things.
The basic award uses the same formula as statutory redundancy pay: half a week's pay for each full year worked under 22, one week for each year from 22 to 40, and one and a half weeks for each year from 41, counting up to 20 years. A week's pay is capped at £751.
The compensatory award covers the money you lose because of the dismissal: net pay, pension and benefits from the dismissal until you find equivalent work, or until the tribunal thinks you should have. It is not a punishment for the employer. Tribunals commonly award months of loss, not years.
The award can then be reduced:
- if a fair process would have led to dismissal anyway (a "Polkey" reduction);
- if your own conduct contributed to the dismissal;
- if you did not take reasonable steps to find another job;
- by anything you earn in a new job during the period.
It can be increased by up to 25% if the employer unreasonably ignored the Acas Code of Practice on disciplinary and grievance procedures.
Step 4: discount for risk, delay and cost
A claim worth £30,000 on a good day is not worth £30,000 in a negotiation. Multiply the likely award by your realistic chance of winning. Then allow for the fact that a tribunal hearing may be many months away, that you will usually pay your own legal costs even if you win, and that litigation is tiring. Employers make the same calculation from the other side: their legal fees, management time and reputation all have a price, which is why they pay to settle claims they might win.
Typical ranges
| Situation | Compensation often seen, on top of what you are owed |
|---|---|
| Amicable exit, no real dispute | 1 to 3 months' gross pay |
| Flawed redundancy or performance process | 3 to 6 months' gross pay |
| Strong unfair dismissal claim, hard-to-replace role | 6 to 12 months' gross pay |
| Well-evidenced discrimination or whistleblowing | Often more than a year's pay |
These reflect what practitioners commonly see. They are not legal entitlements, and sector, seniority and the employer's appetite for risk all move the number.
Why 2027 changes the sums
For dismissals taking effect on or after 1 January 2027, employees are due to gain unfair dismissal rights after six months' service, and the cap on the compensatory award is due to be removed. A higher earner dismissed in 2027 could claim full loss of earnings where today the claim stops at £123,543 or a year's pay. If your leaving date is close to the changeover, the date matters. See unfair dismissal changes in 2027.
Things worth money that are not money
An agreed reference, an earlier or later leaving date, keeping share options, a pension contribution, outplacement support, release from a non-compete and the wording of the announcement can each be worth more to you than a few thousand pounds. Put a value on them before you negotiate.
Frequently asked questions
What is a good settlement agreement offer?
One that pays everything you are contractually owed and adds compensation that reflects your claims. If the compensation part is zero, you are being asked to waive claims for nothing.
How many months' pay is normal?
Practitioners commonly see one to three months for low-risk exits and three to six months where there is a credible unfair dismissal claim. Discrimination, whistleblowing and senior exits can go well beyond that. These are observations, not rules.
Does length of service matter?
Yes. It increases statutory redundancy pay and the basic award, lengthens your notice and usually makes a tribunal more sympathetic about how long it will take you to find similar work.
Can I get more than the tribunal cap?
Yes. The cap only limits the compensatory award for ordinary unfair dismissal. Notice pay, bonuses, discrimination and whistleblowing sit outside it, and employers sometimes pay more to secure a quick, quiet exit.
Sources
About this guide. This page is general information, not legal advice, and reflects the law and published government plans on the date shown above. Frederick George is a legal referral service, not a law firm. For advice on your own circumstances we will introduce you to an SRA-regulated solicitor.