Which payments are covered by the public-sector exit pay cap?

From 4 November 2020, an exit payment made to an employee in the public sector must not total more than £95,000.

The cap will apply to most payments made on termination of employment, including:

  • redundancy pay (including voluntary redundancy);
  • payments made to prevent reduction of a pension on early retirement (including payments made to the scheme);
  • payments made under a settlement or conciliation agreement and compensation awarded under the Acas arbitration scheme (although the cap will be waived for payments to settle whistleblowing, discrimination and health and safety detriment complaints);
  • severance payments and ex gratia payments;
  • shares or share options;
  • contractual payments in lieu of notice (except where the payment does not exceed a quarter of the employee's salary);
  • compensation for the termination of a fixed-term contract; and
  • any other payment, contractual or otherwise, in consequence of termination of employment or loss of office.

The cap does not cover payments that are made:

  • in respect of death in service;
  • in respect of incapacity as a result of accident, injury or illness;
  • in respect of accrued annual leave;
  • in compliance with an order of any court or tribunal;
  • in lieu of notice under the contract that do not exceed a quarter of the employee's salary;
  • under certain provisions of the Firefighters Pension Scheme; or
  • in certain circumstances, as a service award to a member of the judiciary.

Where an individual has more than one exit from public-sector employment within 28 days, the cap applies to the total payments made in respect of those exits.