Exit Payments - Publication of Special Severance Payment (SSP) Guidance

This applies to academy trusts but adds another layer and needs to be read alongside the 2021 Academy Trust Handbook (currently known as the Academies Financial Handbook).

This article considers focuses on the main features and requirements for the employer.

What Is a 'Special Severance Payment (SSP)?'

SSPs are paid to employees, officeholders, workers, contractors and others outside of normal statutory or contractual requirements when leaving employment.

The guidance states that "Any payment in respect of which the right is disputed by the employer, in whole or in part, should be treated as a Special Severance Payment which requires approval."

This is broadly drafted and make include payments such as payments in lieu of notice and pension strain payments depending on the circumstances and the contractual position.

The SSP can be paid regardless of how the employment is terminated, whether this is a resignation, dismissal, or a mutually agreed termination of contract. It is the responsibility of the public sector employer, as well as that of the sponsoring department, to ensure that the SSP arrangements are "fair, proportionate and lawful."

What Does the Guidance Mean for Academy Trusts?

The latest version of the Academy Trust Handbook confirms that academy trusts must obtain prior approval from the Education and Skills Funding Agency (ESFA) before making a staff severance payment where:

• an exit package which includes a special severance payment is at, or above, £100,000; and/or
• the employee earns over £150,000.

In addition to this, Treasury approval will still need to be sought. The Treasury's new guidance outlines a stringent approval process (which involves submitting a specific form) which needs to be followed. For some amounts, this may even require gaining ministerial approval.

What Do Academy Trusts Need to Consider When Making Severance Payments?

In all cases when making a severance payment (whether or not it falls within the SSP guidance) an academy trust must consider the following issues:

• that the proposed payment is in the trust’s interests
• whether a payment is justified, ie what would be the likelihood of success for the academy at the employment tribunal, and consideration of whether a settlement should instead be offered
• if the settlement is justified, the trust would need to consider the level of settlement. The handbook states that this "must be less than the legal assessment of what the relevant body (eg an employment tribunal) is likely to award".

The Academy Trust Handbook makes it clear that "Staff severance payments should not be made where they could be seen as a reward for failure, such as gross misconduct or poor performance."

It gives an illustration of some acceptable, yet limited, examples of using the severance payments including:

• in the case of gross misconduct, a situation where legal advice indicates that the claimant is likely to succeed in an employment tribunal because of employment law procedural errors; or
• in the case of poor performance, a situation where the time and costs of taking someone through performance and capability procedures outweighs the costs of a severance payment.

Where the academy trust is considering a staff severance payment of £50,000 of more (over and above any contractual or statutory element) it is necessary to obtain ESFA’s prior approval before making a binding offer to staff.

Academy trusts are required to make disclosures in their annual accounts about all severance payments paid during the financial year.

Summary

When considering the possibility of entering a settlement agreement which includes making a severance payment that is over and above the contractual and statutory entitlements academy trusts will need to have regard to both the Treasury guidance on public sector exit payments and also the Academy Trust Handbook.

The requirements of the latter should be familiar to trusts and require all severance payments to be justified with prior approval required by the ESFA where the £50,000 threshold is exceeded.

The new guidance adds an additional layer which also requires prior approval from the Treasury and ESFA where a special severance payment is at, or above, £100,000 and/or when any level of payment is made when the employee earns over £150,000.

There is increasing scrutiny on payments made to exiting staff and trusts will need to ensure that the appropriate steps are taken in good time and documented in order to ensure that the necessary clearance is received before the exit arrangements are agreed and finalised.

For further information on Special Severance Payments, please contact Mark Stevens (07909 681036) or Alice Reeve (0117 314 5383) in our Academies, MATs & Schools team, or complete the form below.