GLD Vacancies

The clampdown on severance payments

Money iStock 000008683901XSmall 146x219Sarah Lamont looks at how employers and employees should prepare for new government regulations on public sector severance payouts.

The Government says that too many people with top jobs in local authorities are leaving with large severance payouts – only to walk into another public sector role soon afterwards.

Recent examples include a city council chief executive who has been given half a million pounds in two redundancy payments in seven years – and has now been hired by another authority on £1,000 a day.

Now, at a time when public finances continue running one of the highest deficits in Europe, the Government wants to put another lid on what it sees as excessive windfall settlements.

There is already regulation of high-value exit payments for senior managers in the NHS and in local government. But notice has been given that from 2016, anyone earning more than £100,000 could see those payments being recouped – if they take another public sector role within a year.

The ‘Repayment of Public Sector Exit Payments Regulations’ place new obligations on both the previous and new employer. It is an added layer of complexity at a time of huge upheaval in the public sector, when many local authorities are looking to hire the best managers and leaders to drive new business models and the reformed public services that communities need.

Both local authorities AND employees need to prepare to make sure they’re not caught out by the new rules, and be better aware of both the legal and reputational risks – ensuring that the right internal processes are in place to avoid unnecessary litigation.

The amount of the severance payment to be repaid will be reduced pro rata, depending on when the individual returns to public sector employment.

There is also provision for lower repayments if there is a drop in remuneration on re-employment, either because the new role is less well paid or is part-time.

Outgoing employer responsibilities

  • Informing the exit payee of the potential consequences should he/she return to work in the same sub-sector;
  • Keeping exit payment records for as long as may be necessary (and for at least 12 months);
  • Seeking repayment where appropriate.

Incoming employer responsibilities

  • Ensuring that any amounts owing have been repaid before allowing the exit payee to begin new employment;
  • If repayment has not been made, ensure that there are appropriate provisions in place to remove the exit payee from their new role or to stop them working.

Employee responsibilities

  • Informing the old and new employer about any exit payment that could be repayable;
  • Before taking up new employment, making arrangements to repay any outstanding exit payments;
  • Repaying the former employer any amounts due within a reasonable time.

The long lead-in time is intended to allow public sector employers time to amend any compensation schemes so that they comply with the regulations. They are still in ‘draft’ so may change – but probably not significantly.

They are intended as a starting point, and will not preclude organisations from going further than the statutory framework.

Preparation is key – employers will need to make use of the lead-in time before next April to ensure they have reviewed any policies, procedures, contractual documentation and/or compensation schemes, which may be affected by this change, and put in place the necessary amendments or new documentation.

Sarah Lamont is a partner in the employment and pensions department at Bevan Brittan. She can be contacted on 0370 194 8943 or This email address is being protected from spambots. You need JavaScript enabled to view it..
42BR Midpage Employ