Severance payments

A severance payment is any payment that isn't required under a person's employment agreement, but the employer agrees to make it as part of the exit arrangement. The basic principles of accountability, integrity, and fairness always need to be considered...

The basics

Public sector employers need to have good reasons for making a severance payment, the level and form of the payment needs to be appropriate, and the decision needs to be properly authorised.

Additional requirement for councils

Accounting standards require some disclosing of severance payments, regardless of any confidentiality agreement. And under the Local Government Act 2002, councils have to be even more open about these sorts of payments.

Common pitfalls

Public sector employers can encounter problems (financial penalties, public or political scrutiny, or poor audit outcomes) if they fail to follow a good process or do not have a principled basis for a severance payment. This section gives two examples of errors public sector employers sometimes make, which can be avoided by obtaining proper advice when necessary.