Restriction on public sector exit payments

The Restriction of Public Sector Exit Payments Regulations 2020 (“the Regulations”), which impose a cap on public sector exit payments at £95,000 came into force on 4 November.

Exit payments are important for employers to reform and react to new circumstances. Equally, they provide support for employees as they seek alternative employment and in some cases, the payments can act as a bridge until retirement.

The £95,000 cap was introduced to ensure that exit payments represent value for money and are fair to the taxpayers who fund them.

The cap will apply:

  • across the public sector;
  • to the total sum of payments made in a “relevant public sector exit” (which is defined as an individual leaving the employment of a public sector employer); and
  • to the total amount of all relevant exit payments made to an employee where two or more relevant exit payments occur within any period of 28 days. Therefore, the total of all the relevant payments within that period must not exceed £95,000.

The Armed Forces, the Secret Intelligence Service, the Security Service, the Government Communications Headquarters, The Royal Bank of Scotland Group plc, NRAM Limited, and Bradford & Bingley are exempt from the Regulations.

Furthermore, under Section 153C(1) of the Small Business, Enterprise and Employment Act 2015, there is power to relax the cap in limited cases, which include the following:

  • TUPE transfer; or
  • Employment Tribunal claims arising as a consequence of whistleblowing, discrimination and health and safety where the Decision Marker (Minister of the Crown or the full council in a local authority) is satisfied on the balance of probabilities that a tribunal would make an order of compensation.

It seems that parties involved in Employment Tribunal litigation can still settle matters and public sector organisations can make payments in excess of the £95,000 cap but only in limited circumstances and provided appropriate approvals are obtained.

The cap will apply to all payments (subject to limited exceptions, which we have set out below) which are made on the “termination of employment or loss of office”, including the following payments:

  • redundancy;
  • compensation;
  • a severance package;
  • a voluntary exit;
  • pay in lieu of notice (which is over a quarter of an individual’s salary);
  • employer funded early access pension payments.

The exceptions for payments that are not strictly exit payments, include:

  • payments that result from an employee’s accrued right to a pension. For example, a lump sum payment on retirement from the pension scheme would fall outside the scope of the cap if it is based on the pension entitlement that the employee had accrued in respect of their employment up to the time of their exit;
  • payments in lieu of annual leave; or
  • any payment in compliance with an order of a tribunal or court.

The government guidance and directions set out the obligations on both employees and employers, including a waiver process for payments over £95,000.

For further information, please contact our specialist employment law solicitors on 020 3950 5234 or