Government reforms (1): Cap on exit payments

compensatory award - scales balancing person and moneyWhat do we already know?

We updated you in our September 2015 Newsletter Government reforms (2): Enterprise Bill that the Government proposes to cap exit payments made to public sector workers to £95,000 in reforms which are most likely to take effect in October 2016 or later.

What’s new?

The Government has published its response to the consultation on the exit payment cap (available here). The consultation ran from 31 July to 27 August 2015.

The Government confirms that it intends to proceed with the cap. The consultation response identifies groups of employees who will be excluded from the cap and circumstances in which the cap will not be applied. It also sets out those payments that will be taken into account in cases where the cap is applied:

  • Excluded groups: including members of the armed forces, employees of the BBC, Channel 4, the Financial Conduct Authority and the Bank of England.
  • Circumstances in which the cap will not be applied: including payments made following a claim for breach of contract or unfair dismissal; payments following death or injury attributable to employment; ill-health retirement payments; or payments to employees with protected terms following a TUPE transfer.

When used, the cap will apply before tax and cover the total aggregate value of the following payments:

  • voluntary and compulsory exit payments, including those made on redundancy;
  • ex-gratia payments and special severance payments;
  • the monetary value of any extra leave, allowance or other benefits granted as part of the exit process that are not payments in relation to employment;
  • employer costs of providing early unreduced access to pension; and
  • payments made in respect of contractual entitlements such as payments in lieu of notice or for accrued but untaken holiday.

Any waiver of the cap would require consent from the relevant Minister, or from the full council in the case of local government exit payments. Relevant bodies will be required to annually publish details of all exit payments made.