The Enterprise Bill 2015/16 is all to do with ‘the promotion of enterprise and economic growth’ and making a provision ’restricting exit payments in relation to public sector employment’. It is a long piece of legislation but two areas specifically impact payroll and HR professionals:
- Part 4 ‘Apprenticeships’, and
- Part 8 ‘Public Sector Employment: Restriction on Exit Payments’
This article is about the second issue and the restriction of exit payments for public sector employees. This was originally announced on 23 May 2015.
Where does it apply?
It is really important to consider devolution in everything that we do and payroll and HR professionals always need to consider where any new legislation will apply. Invariably, new legislation adds to or amends existing legislation, therefore, the first port of call is to look and see what Part 8 in the Enterprise Bill actually does. It is the primary enabling legislation and adds and amends sections in the Small Business, Enterprise and Employment Act 2015 (SBEEA), which applied UK-wide. By inserting sections into the SBEEA, this allows for future Regulations that will actually impose the cap and give an effective date.
However, public service pension and compensation arrangements are devolved to Northern Ireland and a Legislative Consent Motion (LCM) was passed in the Assembly to legislate for the provisions in the SBEEA. This was to ensure that the provisions would apply UK-wide, as was the UK Government’s intentions. On 11 November 2015, the Department of Finance and Personnel in Northern Ireland (DFPNI) wrote to the Assembly outlining that the provisions of the Enterprise Bill allow for Regulations to make changes in that part of the UK via an Assembly Bill. However, it warns that such legislation is unlikely to be enacted at the same time as the Enterprise Bill, expected in early 2016. This is even more likely given that the Assembly will be dissolved in March 2016 prior to elections in May 2016. Therefore, it recommends that a similar LCM is passed in Northern Ireland, ensuring parity for all public sector employees and employers in all parts of the UK.
In summary with regard to how the provisions will apply UK-wide:
- Great Britain via the Enterprise Bill
- Northern Ireland via a LCM. However, at this stage it is only a recommendation that a LCM is passed and this may change.
If the above does happen, the Enterprise Bill will apply to public sector bodies where employment and reward packages are controlled by central UK Government. It does not apply to devolved public sector bodies in Scotland, Wales and Northern Ireland, though the Bill does allow for the respective devolved administrations to make similar regulations in the future.
(Increasing devolution is complicated but it is essential that we understand that the same thing can operate differently in different parts of the United Kingdom.)
What are the restrictions on exit payments?
From 31 July to 27 August 2015, the Government consulted on the proposed restrictions. It started by saying that whilst exit payments served an important purpose for both employers and employees, the value of the payment was often excessive and did not pose value for money for the taxpayer. Therefore, it was seeking to impose a cap of £95,000 on the total value of exit payments. This would be implemented via the Public Sector Exit Payments Regulations 2016 (these Regulations actually give effect to the provisions in the Small Business, Enterprise and Employment Act 2015, inserted by the Enterprise Bill).
In September 2015, the Government published its Responses document ahead of the draft 2016 Regulations that were published earlier this month. In fact, this document is a really good summary of the Regulations, details as follows:
- they apply to current and future public sector employees, although there are a number of exemptions
- the pre-tax £95,000 cap will apply to the aggregate of all payments made as a result of all exits from employment (i.e. redundancies and voluntary exists). This includes statutory and contractual exit payments like pay in lieu of notice (PILONs)
- it will not apply in respect of payments made as a result of death, accident, injury or illness. Further, it will not apply to payments made a result of an order of a court or payments of outstanding leave due under a contract of employment
- the term ‘payments’ extends beyond cash remuneration and, for example, includes payments that are made by way of the issue of shares, benefits and payments made to a pension scheme
- the 2016 Regulations will allow for this cap to be reviewed in the future
- the 2016 Regulations will make a provision for the £95,000 cap to be ‘relaxed’ where there is Ministerial or Treasury approval
The Responses document indicates that compliance and transparency will be achieved by requiring ‘bodies to maintain records and publish annual details of all exit payments made within the financial year’. I do not see this in the legislation.
However, there are two activities that are specified and employers need to have practices and procedures in place to ensure that there is not a breach of the legislation:
An employer needs to ensure that the total of all relevant exit payments do not exceed the £95,000 cap. Further, in the circumstances that two or more public sector bodies make such payments within a period of 28 days, the payments must be aggregated to ensure that they do not exceed the cap. The 2016 Regulations seem to impose a responsibility on the individual in receipt of the exit payments to advise the bodies so that they can ensure the cap is not exceeded.
Where a relaxation to the cap is given Ministerial approval, the SBEEA will be amended to say that:
- the reason for the relaxation should be kept for a period of 36 months
- the annual accounts must contain details of the number of times in the previous 12 months that a relaxation has been used. These details may also be provided by way of a list, published at the start of the financial year. There is no information in the draft Regulations that specifies what information needs to be published apart from the number of times that a relaxation took place.
Preparation for Employers
There is no effective date in the draft Regulations, so this is one to look out for. It is expected to be effective April 2016. However, as can be seen above, there is a great deal for public sector employers to concern themselves with at the moment.