What is Ex gratia?
When an employee is offered a settlement agreement there will usually be a financial incentive. This is sometimes expressed as ‘compensation’, ‘termination payment’ or an ‘ex gratia’ sum.
Ex gratia is a Latin term, and it means “out of goodwill”. An ex gratia payment is one which the employer is not legally obliged to pay. It is something they are offering to pay an individual out of their own goodwill, and if an ex gratia payment is to be made, usually at the termination of employment, the employer will invariably ask the individual to enter into a Settlement Agreement. The payment is usually made, with an accompanying settlement agreement, because an employer will want the comfort of knowing that the individual will not then try to take a claim against them in relation to their employment or the termination of that employment.
Genuine ex gratia payments can be paid tax free up to £30,000.
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