In Short
- Ex Gratia Payment: A payment made voluntarily by a business, without admitting legal liability, often to resolve a dispute or compensate an individual.
- Purpose: Provides a practical way to settle claims, maintain goodwill, or manage risk without formal legal proceedings.
- Legal Requirements: No strict legal obligation exists, but documentation should clearly state that the payment is made voluntarily and does not imply liability.
Tips for Businesses
Consider ex gratia payments to resolve disputes efficiently and maintain relationships. Clearly document the payment terms, ensure it does not imply liability, and seek legal advice to protect your business and avoid unintended legal consequences.
An organisation, government, or other company can make a voluntary payment to an employee without any obligation to compensate the employee. Such voluntary payment is referred to as an ‘ex gratia payment’. In an employment context, an employer typically offers an ex gratia payment when the employment relationship ends or when the relationship has broken down. An employer might make an ex gratia payment to settle disputes, particularly where the employee feels that their employer wrongfully dismissed or victimised them. This article explains the laws regarding ex gratia payments.

As an employer, understand your essential employment obligations with this free LegalVision factsheet.
When Can Employers Make an Ex Gratia Payment?
To resolve a legal disagreement with an employee, an employer might make an ex gratia offer. If the employment relationship ends, the aim might be to prevent unfavourable publicity or maintain an amicable relationship.
When determining the amount of an ex gratia payment, you must consider various factors, including:
- the employee’s circumstances;
- whether the employee suffers any actual or perceived loss;
- commercial considerations, including budget;
- reputational risks;
- legal risks; and
- the employee’s salary/remuneration.
When is an Ex Gratia Payment Genuine?
Your company is not obligated to offer an ex gratia payment. After all, it is often a gesture of goodwill. For example, say you terminated an employee, and they subsequently filed an unfair dismissal claim. Before conciliation, you offer them a payment of $500. This is a voluntary payment made as a gesture of goodwill and separate from legal entitlements.
Alternatively, ex gratia payments are not genuine if you provide it instead of a payment borne by a legal entitlement you owe the employee. For example, say your employee recently resigned and has an annual leave balance of $500. You make the payment along with their final pay. This is not an ex gratia payment as it is a legal entitlement.
Continue reading this article below the formIs Tax Payable on Ex Gratia Payments?
Payments are typically tax-free, where you make them upon cessation of employment. If you pay your employee voluntarily upon retirement or termination/resignation, these payments are employment termination payments (‘ETP‘).
An ETP is tax-free if it is related to:
- employment before July 1st 1983; or
- invalidity
If an ETP does not fit under one of these categories, it is likely taxed.
Is an Ex Gratia Payment Confidential?
A usual condition of making an ex gratia payment is that it remains confidential. This can be implemented by, most commonly, a deed of release or other written agreement.
Key Takeaways
Employers can utilise ex gratia payments in disputes with employees. They can be negotiated and balanced according to reputational, legal, and commercial risk. Nevertheless, ex gratia payments to employees are voluntary. That is to say, ex gratia payments are separate from your employee’s legal entitlements, such as paid leave.
If you need help fulfilling your employer obligations, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An ex gratia payment is a voluntary payment an employer or organisation makes to an employee as a gesture of goodwill and in the interest of resolving a dispute.
An ex gratia payment is voluntary, unrelated to legal entitlements, and typically made without admission of liability.
Yes, ex gratia payments can be confidential by agreement, typically via a deed of release.
We appreciate your feedback – your submission has been successfully received.