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HMRC internal manual

Statutory Payments Manual

From
HM Revenue & Customs
Updated
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Miscellaneous: compromise agreements

Statutory Payment (SP) rights remain regardless of any compromise agreement. They will still be payable by the liable employer unless the agreement stipulates and it is visible that the final payment includes the full entitlement of any SP due.

For example, if an employee agrees to accept a compensation package on termination of her employment when she goes on maternity leave, the employer will only have met their liability to pay SMP if:

  • the compromise agreement specifically states that the payment includes SMP, and
  • NICs has been paid or is to be paid on the amount of SMP included in the payment, either as a deduction from the payment made to the employee or by the employer under the normal rules for tax and NICs on gross payments.

An employee does not have to claim a SP so they cannot waive their right to a SP by signing a general agreement “not to make further claims against their employer”.

Each compromise agreement would need to be examined to see if the sum of money payable to the employee included the full entitlement to the SP. If it did, the agreement would not be rendered void and the employee should receive the full entitlement through the agreement.

If the compromise agreement did not include the full entitlement, then the agreement wouldbe rendered void as far as the SP entitlement was concerned and HMRC could rule in such a case that the employee was still entitled to receive the full SP from the employer.

Any agreement which seeks to remove an employee’s right to receive SP is unlawful under the provisions of

  • Section 164(6) & (7) of the Social Security Contributions and Benefits Act 1992 for SMP
  • Section 151(2) and (3) of the Social Security Contributions and Benefits Act 1992 for SSP
  • Section 171ZF of the Social Security Contributions and Benefits Act 1992 for OSPP/ASPP
  • Section 171ZO of the Social Security Contributions and Benefits Act 1992 for SAP
  • Section 171ZZ of the Social Security Contributions and Benefits Act 1992 for ShPP