Public sector exit payments may soon be capped at £95,000

Posted: 07/02/2017

1 February 2017 marked the coming into force of section 41 of the Enterprise Act 2016, a provision that gives the Secretary of State the power to issue regulations preventing employees and office holders in the public sector from receiving exit payments which exceed £95,000.

For the purposes of this legislation, an exit payment is a payment made to an employee or office holder by their employer in consequence of their leaving the organisation, such as:

• any payment on account of dismissal by reason of redundancy;
• any payment on voluntary exit from employment;
• any severance payment or other ex gratia payment
• any payment in respect of an outstanding entitlement;
• any payment of compensation under the terms of a contract;
• any payment in lieu of notice due under a contract of employment; or
• any payment in the form of shares or share options.

Consequently, once regulations are passed, the aggregate amount of any of the above payments to a public sector employee shall not exceed £95,000 (although there may be exemptions in prescribed circumstances, and section 41 gives ministers the ability to relax any restriction imposed by the regulations).

Whilst the Draft Public Sector Exit Payment Regulations were consulted on in 2016, it is not clear when such regulations may be issued under section 41. Our guess is sooner rather than later. However, until the regulations are passed, there is no limit on the quantum of exit payments.

If you are considering the exit of a senior employee within your organisation, it is worth noting that in the near future, there may be a limit on the exit package you can provide. Watch this space.

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