Sustainable business commentary |

Cap on public sector exit payments

Overview

The Government has introduced a cap on public sector exit payments which took effect from 4 November 2020. Under the cap, payments by a public sector body in respect of an employee's termination of employment must not exceed £95,000 in total for that employee.

In terms of what is covered by the cap:

  • payments for accrued but untaken holiday are excluded

  • a payment in lieu of notice equivalent to up to a quarter of the employee's salary is exempt from the cap but any part of the payment in lieu above this would be caught

  • redundancy payments are caught, whether statutory or enhanced

  • payments resulting from the employee's accrued right to a pension are excluded but employer-funded early access to pension payments are within the scope of the cap.

Ministers have the power to relax the cap in certain situations and must do so in relation to payments made as a result of TUPE, as well as payments made to settle or avoid whistleblowing or discrimination claims. There are other situations where Ministers may relax the cap on a discretionary basis.

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