The Public Sector Exit Payment Cap

The Government is planning to introduce a statutory cap on payments for those leaving public sector jobs of £95,000.00, although the legislation will not come into force before at least the 1st October 2016. Nevertheless, the Government has published the draft regulations, called ‘The Public Sector Exit Payment Regulations 2016

Between 2011-14, the total cost of public sector exit payments came to £6.5 billion. Around 15% of this related to exit payments of £100,000.00 and above.

Under the new regulations, the type of exits the statutory cap would apply to would include amongst others:-

  • Compulsory and voluntary redundancies
  • Severance packages, including those agreed as part of a settlement agreement
  • Pension top up payments
  • Pay in lieu of notice (PILON)
  • Other types of voluntary termination of employment
  • Ex-gratia payments

Hence, all payment relating to loss of employment are included, and the statutory cap is applied to the aggregate payment

Another set of new regulations, The Repayment of Public Sector Exit Payments Regulations 2015, was due to come into force in April 2016. However, implementation has been delayed, but the regulations could come into effect as early as July 2016. Under these regulations, should employees who have received a public sector exit payment be re-employed into any public sector position, or even re-engaged as a contractor, within 1 year of leaving, then those earning £80,000.00 or more in the job they exited would have to repay some of the money they have received.

Nevertheless, the repayment measures are highly likely to be counter-productive, as they will deter employees from taking voluntary redundancies, therefore necessitating compulsory redundancies. That is, these measures will probably end up making redundancy processes far more traumatic than they should be. Whilst it may save money in the short term, the net result is that organisations will be left with a more demoralised and less productive workforce. Some employees who don’t want to leave will be forced to go, whilst others who do want to leave but don’t believe that it is financially worth it, will end up being retained. Penny wise, pound foolish. Far better to allow those who want to go, to leave, and retain a workforce of the willing. Furthermore, the prospect of repayment will deter people from returning to the public sector, thereby producing a ‘skills drain’.

Nevertheless, employers will be permitted to waive the statutory cap and recovery in exceptional circumstances.

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Posted in General Employment Law, Public Sector Exit Payment Cap and tagged , .