By Harriet Broughton, partner at Stone King
The Charity Commission has published updated guidance (CC7) following the implementation of the final part of the Charities Act 2022. As of 27 November 2025, updated rules now apply to the making of ex gratia payments.
Do the new ex gratia rules apply in employment situations?
In short, yes. Whilst we typically think of ex gratia in terms of wills and legacies, the rules apply equally in employment situations. The guidance confirms that an ex gratia, or “moral”, payment will apply where:
- There is no legal obligation to make the payment;
- The charity’s governing document does not have any powers which can be used to make the payment;
- There are no other legal powers which the trustees can use to make the payment; and
- The trustees cannot justify it as being in the best interests of the charity.
In what employment situations might the ex gratia rules apply?
We need to consider the ex gratia rules in many different situations, but, most frequently, we would consider them when looking at settlement, termination or redundancy payments.
Often, charities will want to enhance redundancy or termination payments. This may be for a variety of reasons, including recognising the contribution the employee may have made during their employment, seeking to facilitate voluntary exit and avoiding the time and cost of internal processes, or settling potential or actual disputes or legal proceedings.
In the above examples, the charity is unlikely to be under any legal obligation to make the payment, the governing document may not allow the payment, and there may be no other legal powers trustees can rely on. We therefore need to consider whether the payment can be justified as in the best interests of the charity.
The best interests of the charity may be served in a variety of ways. The guidance includes an example of a gift to a long serving employee on retirement, or an enhanced redundancy payment. These payments may be in the best interests of the charity because it can show it is a good employer, which in turn will help recruit and retain high-calibre staff.
The best interests of the charity might also be served in resolving disputes in a timely and cost-effective manner, protecting the reputation of the charity, and avoiding the impact on staff of internal processes and consultations. As ever, charities must consider situations in the round, and counterarguments could include being perceived to reward failure, setting a precedent of “paying off” disputes, or investing in staff leaving rather than staff remaining in the charity.
What will be in the best interests of the charity will be fact specific, but will require careful consideration.
What if the ex gratia rules do apply?
If the ex gratia rules do apply, then Charity Commission consent may be required.
A charity will not need to obtain Charity Commission consent for an ex gratia payment if:
- The governing document doesn’t restrict them from making the payment;
- The payment falls within set financial limits; and
- The legal tests set out in the guidance are met.
The set financial limits vary depending on the size of the charity’s income in the last year, with a maximum payment of £1,000 for charities with an income of less than £25,000, to a maximum of £20,000 for charities with an income of over £1,000,000.
If the above tests are not met, then Charity Commission consent will be needed.
Do I need to do anything about this now?
Yes! It is always worth being prepared. We recommend:
- ensuring that all trustees and senior leaders have read the CC7 guidance;
- that any delegation of decision making related to ex gratia payments is clearly documented;
- that the application of the ex gratia rules is considered when looking at enhanced payments to staff; and
- that you consider taking expert advice before making payments.
Finally, we routinely see charities and their HR advisers use the term “ex gratia” as an alternative to “settlement” or “termination” payment; avoid using the term “ex gratia” unless specifically dealing with moral payments.