Capping public sector exit payments

Print publication


The Government has announced that it will introduce a £95,000 cap on the total value of all exit payments made to public sector employees. The cap will apply before tax and will cover all redundancy and ex-gratia payments as well as payments in lieu of notice, holiday and benefits.

Payments made following a breach of contract or unfair dismissal claim and ill-health retirement payments will be excluded from the cap which will be brought in via the Enterprise Bill 2015-2016 on a date yet to be confirmed.

This £95,000 cap is in addition to the soon to be introduced rules on repayment of public sector termination payments. Under 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.

What does this mean for affected employers?

Public sector employers need to think about how the cap and the repayment provisions are likely to impact termination discussions and settlement negotiations. These changes (together with proposed changes to the general tax rules on termination payments) are likely to call for an overall rethink of the way in which termination arrangements and payments are typically structured.

Walker Morris’s employment team regularly advise employers on structuring termination payments, settlement agreements and the associated tax considerations. Please contact David Smedley or Andrew Rayment.