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.
