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Home / News and Insights / Blogs / Employment Law / 176: Government publishes consultation on £95,000 cap on public sector exit payments

The Government has published a consultation outlining proposals to introduce a £95,000 cap on public sector exit payments, together with draft regulations and guidance. The power to introduce a cap was introduced in the Small Business, Enterprise and Employment Act 2015, but draft regulations published in 2016 were not progressed.  The new draft regulations are similar to the previous draft but contain some important differences, including an exemption for payments in lieu of notice of up to one quarter of the employee’s annual salary, as well as removal of a provision that would have made entitlement to an exit payment unenforceable to the extent that it exceeded the cap.

The payments to which the cap will apply are specified in the draft regulations. They include ex gratia sums, redundancy payments, pension contributions (including any ‘pension strain’ payments providing unreduced pension before normal pension age), shares and share options. Although payments in lieu of notice are included in principle, payments which amount to less than one quarter of an employee’s contractual entitlement are not included in the sums subject to the cap. The regulations also prescribe the sequence in which exit payments will have to be paid for the purpose of applying the cap. Public sector workers will be required to disclose their departure and eligibility to an exit payment to any other interested or affected public bodies, for example, those paying them as office holders.

The exit payment cap only applies where there is an extra cost to the employer in relation to that exit. Payments which are not exit payments are therefore not in scope, such as death in service, pay in lieu of untaken holiday, compensation for injury, and payments resulting from an individual’s accrued pension rights.

The restrictions can be relaxed in certain prescribed circumstances, for example, severe hardship, grounds related to urgent workplace reforms, or where a payment is a liability acquired through a TUPE transfer, or made to settle a whistleblowing or discrimination claim.

This consultation closes on 3 July 2019 and it is likely that the cap will be brought in this year, possibly as early as October 2019. The Government has confirmed that it will apply to the whole of the public sector, including the Civil Service, NHS, academy schools, police and local government, although there may be a phased introduction.

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