New cap on public sector exit payments

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On 4 November 2020 the Restriction of Public Sector Exit Payments Regulations 2020 come into force. 

These regulations will place a cap of £95,000 on all public sector exit payments.

The measures have been expected for some time as the original proposals were made in 2015. However, it comes into effect at a time when the number of redundancies due to the COVID19 pandemic is expected to peak. Whilst this will primarily impact the private sector there will be pressure on public sector jobs too with expected budget cuts.

The cap will apply to all monies received at termination including any pay in lieu of notice that exceeds a total of three months’ pay.

However, there are exemptions in place for monies due in respect of untaken annual leave and payments made under a death in service scheme or for incapacity as a result of accident, injury or illness.  

Further guidance

Further Treasury guidance is expected in relation to the status of exits agreements already made. However, it appears that the Regulations may have an impact if the exit and payment do not occur before the implementation date of 4 November 2020. 

This means that if the terms relating to an exit were agreed beforehand where the exit payment is made after 4 November the cap would apply.

Employers in this situation would need to take a view as to whether a discretionary waiver would be appropriate. 

The process of applying for a waiver

The process for applying for a waiver will vary by sector but in each case, it appears to require final sign off by a minister. Hopefully, the Treasury guidance will give further information as to what may be considered a good case for waiver other than ‘genuine hardship’. 

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 where there are claims relating to discrimination, health safety issues or whistleblowing where it’s likely an Employment Tribunal would award a higher amount. 

More information

For more information regarding the new cap on payments for the public sector, please contact our expert listed below.

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