Ex Gratia payments are normally linked to Compromise Agreements, see example
http://www.compromiseagreementslimited.co.uk/templates/template
The use of Ex Gratia payments in relation to terminating employment need to be handled carefully as highlight in this article
Getting the terminology right is critical, Earnings, Wages, Holiday Pay, Bonuses, Payment in Lieu of Notice are likely to be taxable. Ex Gratia payments won’t be, if the following apply:
The first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings. Any excess over £30,000 is subject to income tax as normal, but is not subject to any NICs. Two or more payments made in respect of the same employment, or different employments with the same employer, are aggregated for the purpose of the £30,000 limit.
Ex gratia payments, made where the employer is under no legal obligation to do so, and awards from the Employment Tribunal in respect of wrongful or unfair dismissal, can fall within the £30,000 exemption as can payments made on redundancy whether statutory, non-contractual or even contractual.
http://www.out-law.com/en/topics/tax/employment-tax/taxation-of-termination-payments/
Compromise Agreements can sometimes be a good alternative to formal Disciplinary or Redundancy processes.
steve@bicknells.net
