A cap of £95,000 on exit payments in the public sector has now had final approval from Parliament and will come into force 21 days after being signed off by the Minister. We will update further once signature is confirmed and the actual implementation date is known.
We are still awaiting the final updated guidance and HM Treasury Directions, which will cover issues such as the circumstances in which the cap may or must be relaxed.
For public sector organisations, especially those involved in reorganisation, or change management programmes, the cap is likely to have significant implications when there is a need for restructuring of management teams or other employees.
A schedule listing all public sector bodies covered by the cap is set out in the Regulations and includes local authorities, maintained and academy schools, fire authorities, the Civil Service, NHS and the police. It is important that organisations that could potentially be affected should start planning and making preparations now.
The majority of payments related to exit are to be within the scope of the cap including:
- Redundancy payments
- Payments made to reduce or eliminate an actuarial reduction to a pension on early retirement (known as pension strain costs)
- Compensation under the ACAS arbitration scheme (other than those made in respect of discrimination and whistleblowing claims)
- Severance payments
- Payments made in the form of shares or share options on loss of employment
- Payments made in lieu of notice under a contract of employment that exceed one quarter of the payee’s annual salary
- Any other payment made as a consequence of loss of employment, whether under a contract of employment or otherwise.
The total payments made must not exceed the exit payment cap.
The Government says that it expects pension schemes, employment contracts and compensation schemes to be amended in line with the introduction of the cap. For local authorities, there is currently consultation which includes changing the LGPS to accommodate implementation of the cap, which closes on 9 November 2020.
Exemptions (where higher amounts might be paid) include payments in respect of death in service and incapacity as a result of accident, injury or illness. Other exempt payments include amounts in respect of annual leave not taken due under a contract of employment, contractual payment in lieu of notice (that does not exceed one-quarter of the relevant person's salary) and payments made in compliance with an order of a court or tribunal.
The Regulations give powers to ministers to relax the cap in certain ‘exceptional’ circumstances and there are some circumstances where a waiver will be mandatory; including where the obligation to make the exit payment arises as a result of a TUPE transfer, or in discrimination and whistleblowing. In the case of local authorities, power to relax the cap has been delegated to full council, if it is within the guidance.
The Government will provide more detail in the updated guidance and HM Treasury Directions which are awaited. Until further documents and full guidance are available, it is hard to know how the waivers will apply, what impact they will have and how they will link with the current requirement to obtain Treasury approval. We are also aware that the BMA is challenging the Regulations as unlawful and so it remains to be seen what impact that might have on implementation of the cap.