According to HM Treasury figures, between 2011 and 2014, the cost of exit payments in the public sector was around £6.5 billion, and more than £1 billion of this cost came
as a result of exit payments of more than £100,000.
This month the government published its response to the consultation on capping public sector exit payments to £95,000. The government received over 4,000 responses from
a wide range of public bodies and associations and whilst a significant number were against introducing the cap, the government confirmed it will proceed to introduce the cap under the Enterprise Bill 2015/2016. A date for implementation hasn’t been confirmed
but is likely to be in 2016.
Why the change?
The change is driven by public policy around how tax payers’ money is spent and has been introduced against a backdrop of a number of high-profile cases in which employees
departed with a considerable exit payment only to return to the same employer months later.
How will the cap work in practice?
Firstly, the cap will apply to the UK, with Scottish government, Welsh government and Northern Ireland Executive to determine if and how they wish to take similar arrangements
Secondly, there are a number of excluded categories of employees, for example
members of the armed forces and employees of the public broadcasters, such as the BBC and Channel 4.
The cap will also not cover certain compensation payments in respect of unfair dismissal, breach of contract, death or injury attributable to employment, serious ill-health
or ill-health retirement.
The cap will cover payments made in relation to leaving employment, including:
- Redundancy payments, both voluntary and compulsory;
- Voluntary exit payments;
- Discretionary payments made to buy out actuarial reductions
- Ex gratia payments such as special severance payments;
- Payments representing the value of fixed term contracts;
- Payments made to facilitate a dismissal on the grounds of efficiency.
The cap would apply before tax and is intended to be subject to review by the government.
As part of the response, the government highlighted the concerns raised by the respondents to the consultation on how the cap should be implemented and it proposes to take
these matters into consideration as it develops the legislation to deliver the cap.
There is therefore more detail required on the mechanics of the cap, including how the government intend to deal with leavers under the Local Government Pension Scheme.
For more information about any of the above or for practical commercial advice on this or any other aspect of employment law, please contact
Michelle Gray of the Berg Employment Team on 0161 833 9211 or email him at
Follow us on Twitter: @Berg_HR
(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any
of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.)