Government Reforms (1): Public Sector Exit Payments – CAPS LOCK ON…

What do we already know?

We updated you in our October 2015 Newsletter Government reforms (1): Cap on exit payments that the Government proposed that exit payments to public sector workers should be capped at £95,000 (which include pay in lieu or notice, redundancy and ex gratia payments).

There was also a consultation at this time and the Government confirmed in its Response that it intended to proceed with the cap.  The expectation was that the cap would likely become law in early 2017.  However, the law never materialised and it appeared plans may have been shelved.

What’s new?

The Government has resurrected its plans and begun a further consultation (available here) on capping public sector exit payments.  The consultation will be open until 3 July 2019 and invites comments on the draft regulations which set out the proposed cap and on the accompanying guidance to implement its plan.

The draft regulations propose that the following payments will be subject to the cap:

  • any payment for dismissal (this includes redundancy; statutory redundancy must be paid, but there will be a cap on any additional payments that go over the £95,000);
  • any extra payments made to an employee’s pension – it is important to note here that any payments flowing from an employee’s right to a pension, including an accrued entitlement to a lump sum, are not exit payments and will, therefore, not be restricted by the cap. However, a top-up payment by the employer, resulting in the employee receiving a greater pension than they would be entitled to, would be restricted by the cap;
  • compensation payments (not including those related to TUPE or whistleblowing);
  • severance or ex gratia payments, and any payment on a voluntary exit;
  • pay in lieu of notice payments (only where this exceeds a quarter of the employee’s salary); and
  • payment in the form of shares or options, or payment to distinguish any liability under a fixed-term contract or any other payment, contractual or otherwise, following termination of employment or loss of office.

The Treasury has suggested the first round of implementation will cover most public sector employers, including the civil service, local authorities, and schools. It could later be extended to cover organisations such as the BBC, the Financial Conduct Authority and the Bank of England.