The Restriction of Public Sector Exit Payments Regulations 2020 will introduce a £95,000 cap on exit payments in the public sector and will come into force on 4 November 2020.
The amount of the cap
The 2020 Regulations restrict prescribed public sector bodies from making exit payments above the cap of £95,000.
The employers affected are listed in the Schedule to the 2020 Regulations. They include, for example (although the list is much more extensive than the below):
- Local Authorities;
- Health Boards;
- Fire service;
- National Parks;
- Civil Service;
- Royal Mint;
- Meat Promotion Wales; and
- Natural Resources Wales
Types of exit covered
It covers the situation where an employee or officer leaves the employment and where one person holds two or more positions.
Types of exit payments covered
The following payments are exit payments:
- Any payment on account of dismissal by reason of redundancy (but with exceptions in respect of statutory redundancy payment entitlement,).
- Any payment to reduce or eliminate an actuarial reduction to a pension on early retirement or in respect of the cost to a pension scheme of such a reduction not being made.
- Any payment pursuant to an award of compensation under the ACAS arbitration scheme or a settlement or conciliation agreement.
- Any severance payment or ex gratia payment.
- Any payment in the form of shares or share options.
- Any payment on voluntary exit.
- Any payment in lieu of notice due under a contract of employment (although a payment that does not exceed one-quarter of the relevant person’s salary is exempt).
- Any payment to extinguish any liability to pay money under a fixed-term contract.
- Any other payment, whether under a contract of employment or otherwise, in consequence of termination of employment or loss of office.
Payments exempt from restrictions
The following are examples of payments that are not exit payments:
- Any payment in respect of death in service.
- Any payment in respect of incapacity as a result of accident, injury or illness.
- Any payment in respect of annual leave due under a contract of employment but not taken.
- Any payment in compliance with an order of a court or tribunal.
- Any payment in lieu of notice due under a contract of employment that does not exceed one-quarter of the relevant person’s salary.
Public sector employees’ exit packages over £100,000 amounted to £200 million in the 2017-18 financial year. The total of all exit packages in the same financial year was £900 million, including compulsory redundancies and other agreed departures such as voluntary redundancies.
While public sector employees may be shielded to some extent from the increased risk of redundancy as a result of the COVID-19 pandemic, it is expected that the exit payment cap will result in significant savings for public sector employers.
For more information please contact Hannah Belton, Director and Head of Employment Law at Morgan LaRoche on [email protected]