Legal News | 27.11.20
LEGAL UPDATE: RESTRICTION OF PUBLIC SECTOR EXIT PAYMENTS REGULATIONS 2020
A £95,000 cap on the pre-tax total value of exit payments in the public sector came into force on 4 November 2020 in the Restriction of Public Sector Exit Payments Regulations 2020 (“the Regulations”). As you may know, “exit payments” are payments made to employees on the termination of their employment. There are no transitional arrangements in place, which means that if an exit payment is made on or after 4 November 2020, the cap will apply, even if the terms were agreed or the exit took place before this date. The total of all exit payments cannot exceed the sum of £95,000 gross.
Who does the cap include?
The Regulations sets out the public sector authorities that the cap applies to; including local authorities, government departments and NHS trusts, but not including universities and further education colleges.
What payments count towards the cap?
Various forms of exit payments count towards the cap, including but not limited to; redundancy payments, severance payments, settlement agreements, compensation payments, shares and share options, ‘pension strain’ payments and payments in lieu of notice that exceed one quarter of the employee’s annual salary. Where an employee receives exit payments from two or more organisations caught by the restriction within a 28-day period, the cap applies to the total of those payments.
Despite this, where a case is taken to a court or tribunal and the employee wins, any sum paid from the judgement is not treated as an exit payment and thus will not be subject to the cap. Death in service payments, payments for accidents, injuries or illness, payments in lieu of notice that do not exceed one quarter of the employee’s annual salary and payments in lieu of untaken holiday are also not subject to the restriction.
What does this mean for employers?
Although the Regulations exclude the relevant organisation’s right to make the payment, they do not affect the employee’s entitlement to the payment. This could compel the employee to pursue litigation where they are entitled to a payment but their employer cannot pay due to the cap.
If you would like more specific advice on the impact of the Restriction of Public Sector Exit Payments Regulations 2020 on your business or to discuss your options, then please get in touch with your usual contact or email: firstname.lastname@example.org.