Cap on public sector exit payments

2015-11-05 chris posted:

The government has published the draft Public Sector Exit Payment Regulations 2016 which will impose a cap of £95,000 on the total aggregate value of exit payments made to most public sector workers.

The government consulted on proposals to end six-figure exit payments for public sector workers over the Summer. On 16 September 2015, it published its response to the consultation and confirmed its intention to impose a cap of £95,000 on the total aggregate value of most public sector exit payments. The Enterprise Bill 2015-2016, which is currently progressing through Parliament, will insert a new section containing the power to issue regulations to restrict public sector exit payments and to relax the restriction in certain circumstances.

On 3 November 2015, the government published the draft Public Sector Exit Payment Regulations 2016, which contain details of the restriction on public sector exit payments.

The "exit payment threshold" (or the cap) is set at £95,000, but may be varied by further regulations. The cap will apply to:

  • Redundancy and voluntary exit payments.
  • Payments to reduce or eliminate an actuarial reduction to a pension on early retirement.
  • Payments to discharge liability under a fixed-term contract
  • Payments by way of shares on loss of employment.
  • Any other payment (whether or not contractual) made in consequence of loss of employment. The government confirmed in its response to the consultation that this will include payments in lieu of notice. The government believes that it is necessary to include PILONs to ensure that the cap is not circumvented by excessive notice periods which are then paid in addition to an exit payment. It notes that the cap does not affect the flexibility of public sector employers to include PILONs in their contracts. However, it is not clear how this will affect existing contracts with PILONs where the contractual notice period would exceed £95,000.

It will be possible to waive the cap in a particular case with consent from the relevant Minister, or from the full council in the case of local government exit payments.

Public sector workers who receive public sector exit payments and are still employed in the public sector must give their other public sector employer prescribed details of their exit payment.

The cap will not apply to:

  • Payments made for incapacity or death as a result of accident, injury or illness.
  • Payments of accrued but untaken holiday (the government conceded this point in light of consultation responses).
  • Bonus payments.
  • Payments made in damages ordered by a court.
  • Early retirement payments to firefighters.
  • Payments to employees with protected terms following a TUPE transfer.

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