It is common for individuals benefiting from generous public sector severance arrangements to find new employment elsewhere in the public sector, meaning the severance payment becomes a windfall. The government has recognised this represents ‘poor value for money’ where large severance payments have been made. New measures will, therefore, be introduced to allow public sector exit payments to be clawed back where the individual has been re-employed in the public sector within 12 months – and a raft of other exit payment reforms are in the pipeline. Jodie Sinclair from Bevan Brittan explains.
Key features of the scheme
Although there is already some regulation of high-value exit payments for senior managers in the NHS, the new arrangements set out in the draft Repayment of Public Sector Exit Payments Regulations 2016 ('the Regulations') go further and cover a wide range of payments, including the following:
· Redundancy payments.
· Payments on voluntary departure.
· Any payment to reduce or eliminate an actuarial reduction to a pension on early retirement.
· Compensation payable for liability under a fixed term contract.
· Payment in the form of shares or share options, as a consequence of loss of employment.
The Regulations cover most 'ex-gratia' payments, whether made under Conciliation or Settlement Agreements or otherwise. Repayment is made to the organisation from which the employee has exited, and both office-holders and employees will be covered.
However, the Regulations contain a carve-out for payments which equate to normal contractual entitlements, such as payments in lieu of untaken holiday, notice pay or bonus payments.
The Regulations bite where the exit payee returns to employment in any part of the public sector. Please note that this provision changed following consultation: the original draft claw-back regulations applied only where an individual returned to certain parts of the public sector.
Initially, the Regulations were to apply only to individuals who earned £100,000 or more in the year prior to the termination of their employment or engagement but, following consultation, that threshold was reduced to £80,000. The Regulations will, therefore, now have a wider impact that originally envisaged.
The amount of the severance payment to be repaid will be tapered over the course of the first year following exit, so that there will be no repayment required after 12 months.
Implementing the scheme
The mechanics of implementing the repayment provisions are set out in detail in Part 3 of the Regulations and all parties will be subject to various requirements. This includes a responsibility on the outgoing employer to keep a record of any exit payments and to seek repayment where appropriate. The incoming employer will also be responsible for ensuring that any amount due to be repaid has been repaid to the outgoing employer before allowing the individual to begin new employment.
The Regulations were originally timetabled to come into force by April 2016, but that timescale has slipped. We understand that the Regulations will be laid before Parliament shortly, but no implementation date has been published. In the meantime, employers would be well advised to review any policies, procedures, contractual documentation and/or compensation schemes which may be affected and put in place the necessary amendments or new documentation.
Please note that the Regulations are additional to the draft Public Sector Exit Payment Regulations 2016, which will impose a cap of £95,000 on the total value of exit payments made to most public sector workers.
The government has also consulted on other reforms to public sector exit payments, including:
· Setting a maximum tariff for calculating exit payments at three weeks' pay for each year of service
· Capping the maximum number of month's salary that can be used when calculating redundancy payments up to 15 months
· Tapering the amount of lump sum compensation an individual is entitled to receive as they get close to the normal pension age in that employment.
The consultation ran from 5 February 2016 to 3 May 2016 and the outcome is awaited.
If you require any further information or assistance with preparing for, or implementing, the new public sector exit payment recovery regulations or cap on exit payments, please get in touch with me, or your usual Bevan Brittan contact.