This guide explains to academy trusts how to seek approval to make special severance payments.
This guide is for academy trust accounting officers and finance staff considering making special severance payments. It explains what you should consider before making any such payments, and how to seek approval from the Education Funding Agency (EFA) for payments of or over £50,000, or for any value where an Financial Notice to Improve (FNtI) is in place.
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.
Severance payments, specifically non-contractual elements, are always under close scrutiny. The National Audit Office published a report on severance payments in June 2013 and the Public Accounts Committee followed this up shortly afterwards.
What to consider before making any special severance payment
- review the academies severance payments form
- read the detailed advice set out in section 3.7 of the Academies Financial Handbook
You should then take the following steps:
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 must not be made to staff with poor performance, and EFA and HM Treasury will not approve such payments.
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.
Clearly document the management process
This must take account of the academy’s own internal processes and employment law.
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 has to be demonstrated.
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.
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.
Seeking approval for the severance payment
Payments of or over £50,000
For non-contractual payments of or over £50,000 you must seek prior approval using the academies severance payments form.
Please send your completed form to EFA using the enquiry form. You can find a link to this at the end of the page.
EFA will then review the details and either:
- contact you for more information/clarification
- send your form directly to HM Treasury for approval
Payments under £50,000
Non-contractual payments under £50,000 are not required by HM Treasury for prior approval. However, you have to be able to show you applied the same level of scrutiny to a payment as if it were over the £50,000 delegation.
EFA expects academy trusts to have a business case for any non-contractual severance payment and to provide this to EFA in a timely manner if requested.
Failure to justify the payment
If the academy 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, EFA may conduct a visit and impose sanctions in relation to any further severance cases. In extreme circumstances EFA may issue a Financial Notice to Improve, which withdraws the academy freedoms. Further information about Financial Notices to Improve can be found in sections 1.5.6 to 1.5.9 of the Academies Financial Handbook.
Financial Notice to Improve
Where an academy trust is subject to a Financial Notice to Improve, this withdraws the delegated authority limit. As such any non-contractual payments, irrespective of value, should be sent through to EFA for prior approval.
HM Treasury sample process
HM Treasury review a sample of all non-contractual severance payments made from 1 September 2012 onwards, to ensure the delegated authorities are working effectively.
For the financial period up to 31 August 2013 the outcomes were as follows:
- overall, the sample of cases showed that most academies made special severance payments that were regular, proper and good value for money
- there were 2 cases where the payment could not be approved and this suggests that some academy trusts do not fully understand the requirements
Disclosing severance payments in your audited financial statements
Section 7.5.1 of the Academies Accounts Direction explains how academies should disclose severance payments within the financial statements. These should be aggregated in staff restructuring costs, within the staff costs note. Further written disclosure is then required for non-statutory/non-contractual payments on an individual basis.
Academy auditors will verify the value of compensation payments included within the staff costs note as part of the statutory audit and regularity engagement. Auditors will also look at whether prior approval was obtained.
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