Public sector exit payments

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As part of the Small Business, Enterprise and Employment Bill 2014-2015, Regulations will be introduced in April 2016 to require public sector employees or office holders earning more than £100,000 p.a. to repay exit payments on a pro rata basis if they return to the same part of the public sector within 12 months.

This has been triggered by evidence that many senior employees re-joined the public sector within a year after receiving redundancy payments from the same or another public sector organisation. In particular, evidence cited from the Health Select Committee found that of 19,000 NHS redundancies, 17% had been rehired and most within a year. An Audit Commission report in 2010 found that of 37 chief executives who left by mutual agreement over a 2 year period from January 2007, 6 had been employed in another council within 12 months.

The proposals can be summarised as follows:

  • An individual with a salary of £100,000 or more who is made redundant and receives an exit payment will have to repay some or all of that exit payment to the previous employer when that person is engaged by another public sector body within the same sub-sector.
  • Regulations will provide a complete list of sub-sectors. It is likely that the majority of local government bodies will be listed in a single sub-sector while other local government bodies or public corporations will be placed within sub-sectors that correspond to the similarity of their workforce or a central government department’s policy area. The government will consult on the sub-sectors as part of a consultation on the policy’s regulations.
  • The amount of the repayment will be reduced if the person returns to a role with lower pensionable pay.
  • The Regulations will address the issue of individuals who return to work for a public sector organisation off payroll (as an individual consultant or as an employee of a consultancy firm).
  • The payments subject to repayment will include redundancy payments (both voluntary and compulsory), voluntary exit payments, discretionary payments made to buy out actuarial reductions in pensions, ex gratia payments such as special severance payments, payments representing the value of fixed term contracts and payments made to facilitate a dismissal on the grounds of efficiency.

The proposals also include requirements on the old employer to, for example, inform the individual of their obligations as part of an exit payment agreement, retain sufficient records to allow for calculation of the amount of money due to be repaid and agree repayment arrangements with an ex-employee once informed that the individual intends to return to work in the same part of the public sector.

Moreover, the new employer will be obliged to conduct pre-appointment checks re-informing the individual of their obligation, inform the old employer of the planned date of commencement of employment and delay engagement until after confirmation from the old employer that arrangements for repayment have been made.