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Guide to academy trust severance payments

Updated 5 October 2021

Applies to England

1. Introduction

This guide is for academy trusts considering making special severance payments. It explains what you must consider before making any such payments, and how to seek approval from the Education and Skills Funding Agency (ESFA).

Special severance payments are paid to employees, contractors and others outside of normal statutory or contractual requirements when leaving employment in public service whether they resign, are dismissed or reach an agreed termination of contract. You can read more in section A4.13A of the HM Treasury publication Managing Public Money and in the linked Guidance on Public Sector Exit Payments: Use of Special Severance Payments.

2. ESFA approval requirements

As set out in the Academy Trust Handbook, ESFA's prior approval is required for special severance payments where any of the following scenarios arise individually or collectively:

• the proposed special staff severance payment is for £50,000 (gross, before income tax or other deductions) or more
• a special staff severance payment for any value is proposed and the trust is under a Financial Notice to Improve (FNtI) or a Notice to Improve (NtI)
• an exit package which includes a special severance payment is at, or above, £100,000 (gross)
• the employee earns over £150,000 (gross). For this purpose, earnings will not include employer pension contributions

Examples of approval requirements for non-statutory/non-contractual severance payment are as follows:

	Member of staff earns up to £150k	Member of staff earns over £150k
Non-statutory/non-contractual severance payment of £50k or more	Yes	Yes
Non-statutory/non-contractual severance payment is greater than £0 but under £50k, and: a. Total severance payment (sum total of statutory/contractual and non-statutory/non-contractual elements) is under £100k b. Total severance payment (sum total of statutory/contractual and non-statutory/non-contractual elements) is £100k or more	No Yes	Yes Yes

Note: If the total severance payment comprises both statutory/contractual and non-statutory/non-contractual elements, it is the non-statutory/contractual element that the trust must seek approval for, although details of the whole payment must be declared to ESFA so the full context of the request is known.

3. What to consider before making any special severance payment

You should:

• review the academies severance payments form
• read the detailed advice set out in the special payments section of the Academy Trust Handbook

You should then take the following steps:

3.1 Consider whether a special severance payment is appropriate in this case

A severance payment may not always be the right approach: for example, severance payments should not be made to staff with poor performance, and ESFA and HM Treasury are unlikely to approve such payments.

3.2 Take and document legal/HR advice

Appraise any course of action with the associated costs and the likelihood of winning. If there is a good chance of the academy trust winning the case you will also need to demonstrate why this route was not taken and instead, a payment was made to the employee. You should balance the legal and management costs against the level of payout.

3.3 Clearly document the management process

This must take account of the academy trust's own internal processes and employment law.

3.4 Consider the appropriate level of payment

Following any legal advice, can a change from the settlement value actually be justified? A severance payment is made from the public purse and therefore value for money must be demonstrated.

3.5 Ensure you can support any non-financial considerations with evidence

For example, that pupil performance has been affected by a lack of continuity of teaching due to absence or teaching by temporary staff.

3.6 Confidentiality clauses

Academy trusts must ensure that the use of confidentiality clauses associated with staff severance payments do not prevent an individual's right to make disclosures in the public interest (whistleblowing) under the Public Interest Disclosure Act 1998. Such payments, specifically non-contractual elements, are always under scrutiny. The National Audit Office published a report on confidentiality clauses and severance payments in June 2013 and the Public Accounts Committee followed this up shortly afterwards.

4. Seeking approval for the severance payment

Where prior ESFA approval is required you must use the academies severance payments form.

Please send your completed application to ESFA by attaching it to an ESFA enquiry form.

ESFA will then review the details and either:

• contact you for more information/clarification
• send your form directly to HM Treasury for approval

Where prior approval is not required by ESFA and HM Treasury, you still must be able to show you applied the same level of scrutiny to a payment. ESFA expects academy trusts to have a business case for any non-contractual severance payment and to provide this to ESFA in a timely manner if requested.

4.1 Failure to justify the payment

If the academy trust is unable to show they have treated the payment correctly, we reserve the right to claw back the payment.

In some circumstances the re-payment may not be requested. However, ESFA may conduct a visit and impose sanctions in relation to any further severance cases. In extreme circumstances ESFA may issue a Notice to Improve, which withdraws the academy freedoms. Further information about Notices to Improve can be found in theAcademy Trust Handbook.

4.2 Notice to Improve (Financial Notice to Improve before 1 September 2021)

Where an academy trust is subject to a Notice to Improve or Financial Notice to Improve, this withdraws the delegated authority limit. As such any non-contractual payments, irrespective of value, must be sent through to ESFA for prior approval.

4.3 Disclosing severance payments in your audited financial statements

The Academies Accounts Direction explains how academy trusts must disclose severance payments within their financial statements. These should be aggregated in staff restructuring costs, within the staff costs note. Further written disclosure is required for non-statutory/non-contractual payments on an individual basis.

Academy auditors may verify the value of compensation payments included within the staff costs note as part of the statutory audit and regularity engagement. Auditors may also look at whether prior approval was obtained.