In an attempt to end the “revolving door” culture of big pay offs for senior public servants, the Government confirmed last week that public sector employees earning £100,000 or more who take large exit payments, but then return to the same part of the public sector within a year, will need to repay all or part of their exit payment to their former employer.
The proposals follow months of consultation on the issue and the measures will be implemented through the Small Business, Enterprise and Employment Bill, which will come into force in April 2016. The regulations will apply to almost all of the public sector, including the Civil Service, local government and the NHS. However, it is said that they will not apply to national museums, public broadcasters, and the Bank of England - to protect their independence.
A brief outline of the proposals is as follows:
(i) Individuals earning £100,000 or more who are made redundant and receive exit payments will have to repay some or all of that exit payment to their former employer if they are engaged by another public sector body within the same sub-sector. A full list of sub-sectors will be provided in the regulations.
(ii) The proportion of the exit payment to be repaid will be determined according to the length of time between an individual’s dismissal and return (and loss of earnings between jobs). The full exit payment will be recoverable if an individual is engaged within 28 days, to be reduced on a sliding scale until 12 months after their departure, where none of the exit payment will be repayable.
(iii) If individuals return to roles with lower pensionable pay, the amount of the repayment will be reduced to reflect this.
(iv) In some cases, waivers may be granted to remove the obligation to repay. These may be granted by the Secretary of State of the parent department of each sub-sector or by the full council in cases involving local authorities and local government bodies.
(v) Individuals who return to work off payroll (for example, as individual consultants or employees of consultancy firms) will not escape the regulations. However, a casual work limit of 15 days in a 90-day period will be permitted, but this could also be waived.
What does this mean for public sector employers?
Former employers must inform individuals of their obligations as part of an exit payment agreement. Under the proposals, they must also retain sufficient records to allow for calculation of the amount to be repaid, agree repayment arrangements with individuals, inform new employers where such arrangements have been made and, of course, ensure that the exit payment is actually recovered. Where waivers have been granted, these will also need to be recorded in an employer's annual reports and accounts.
A new employer must remind individuals of their obligations, inform former employers of the date when individuals are to be engaged, provide details of salary to assist with calculations and, in some circumstances, delay engagement until confirmation is received that arrangements for repayment have been made.
From a taxpayer's perspective, on one analysis it seems only fair that highly-paid public sector employees should have to repay a proportion of their exit payment if they secure employment within a short timeframe. Indeed, a phrase involving the words stable, horse and bolted may come to mind. Many public sector employers do already have individual repayment arrangements in place.
Timing will also be a challenge in a wider sense. The Small Business, Enterprise and Employment Bill is yet to be pushed through and the Government has limited time to do this before next year's election.