Special severance payments

When carrying out structural change or introducing new ways of working it may result in the need to reduce the establishment through the deletion of posts and/or the re-defining of skill sets within teams. To achieve this the Authority may need to make special severance payments over and above any statutory or contractual entitlement, to enable employees to leave the organisation to support these change initiatives.

The Authority has always sought to do structural change through natural turnover and has chosen not to apply compulsory redundancy wherever possible to do so. In addition, they have used redeployment, retirement, flexible retirement and the offer of voluntary redundancy.

In 2012 the Authority agreed an enhanced redundancy package. This package includes:

the use of the government calculator to calculate statutory redundancy based on age (maximum 61) and years’ service (maximum 20)
average weekly pay is calculated on actual pay whereas the statutory redundancy is calculated on weekly up to a set maximum amount.
lump sum payment of an additional 12 weeks’ pay

Those taking redundancy are entitled to statutory notice pay i.e. a maximum of 12 weeks (1 weeks’ notice for each year of service). Individuals being dismissed or resigning due to other reasons will be entitled to the notice stated within their contract of employment. All notice pay is subject to tax and national insurance.

In May 2022 the government issued a new guidance which relates to the making and disclosing of special severance payments by local authorities in England. This guidance sets out:

that these payments should only be made in exceptional circumstances
what would be included in a special severance payment
what would be considered an exceptional circumstance
and how payments should be disclosed and reported.

The Authority has the responsibility to ensure that special severance payments are only made when there is a clear, evidenced justification for doing so, and such payments are in the interests of the taxpayer. It must also ensure that all relevant internal policies and procedures have been followed and all alternative actions have been fully explored and documented. If in exceptional circumstances it is decided that a special severance payment should be paid, it is the responsibility of the Authority to ensure that this is fair, proportionate, lawful and provides value for money for taxpayers.

Special severance payments are payments made to an employee, worker or contractor when leaving employment in the public sector. These payments may be made in circumstances where an employee resigns, is dismissed or agrees to a termination of contract.

The following payments would not be classed as a special severance payment:

statutory redundancy
contractual or voluntary redundancy
payment of untaken annual leave
any payments made through a COT3 agreement (a settlement agreement that records the terms of settlement of an employment tribunal claim)
payments made as a result of an ill health retirement
the non-working of notice period due to business reasons.
pension strain paid under LGPS Regulation 68(2) which results from a LGPS member’s retirement benefits becoming immediately payable without reduction under Regulation 30(7), or under Regulation 30(6) where the employer has waived the reduction under Regulation 30(8). This relates to the strain costs incurred by employers when a member takes early retirement on the grounds of redundancy or business efficiency. Or where a member takes flexible retirement, and an employer decides to waive any reductions.

The following payments, however, would form part of a special severance payment:

any payments made under a settlement agreement which will discontinue legal proceedings without admission of fault
the value of any employee benefits / allowances which continue beyond the agreed exit date
write off of any loans or hardship payments
any honorarium or hardship payments
costs incurred due to re-training or outplacement services relating to termination of employment
pay or compensation in lieu of notice where the amount is greater than the amount due
pension strain payments arising from employer discretions to enhance standard pension benefits (for example under Regulation 30(5) where the employer has waived the reduction under Regulation 30(8) or because of the award of additional pension under Regulation 31). Regulation 30(5) refers to members who are aged 55 or over and voluntarily elect to draw their retirement benefits, and accept any actuarial reductions applied to these benefits. Under this Regulation an employer can decide to waive in whole or part any reduction and cover the costs incurred. This is a mandatory requirement. Under Regulation 31, an employer can award additional annual pension to a member.

In considering whether it is appropriate to make a special severance payment the Authority must consider if the payment is a proper use of public money. Payments should be consistent with the Public Sector Equality Duty under the Equality Act 2010.

Consideration should be given to:

Economy – there should be an economic rationale behind the proposal which considers if the individual can be exited at a lower cost, public perception, could there be a better alternative use of the money and any potential of setting a precedent.
Efficiency and effectiveness – ensure that these payments are not avoiding management action, consider chances of legal success balanced against cost to take case to court and ensures that the payments are in line with public sector practice.

The approval process for special severance payments will be:

payments of £100k and above must be approved by the Authority
£20k to £100k must be approved by the Chair of the Authority and the Chief Executive
less than £20k can be approved in line with the Officers Scheme of Delegations.

To avoid conflict of interest it is expected that the payment will be approved by at least two independent persons. In the case of all severance payments, it will be part of the Authority’s S151 Officer, and where appropriate, the Monitoring Officer responsibility, to monitor and justify special severance payments made by the Authority.

There will be an annual collection of data relating to exit payments by the Department of Levelling up, Housing and Communities and this data will be published into official statistics through the gov.uk website.