Severance payments in FE colleges: are the rules changing?

What is a severance payment?

The College Financial Handbook states that severance payments are monies paid to employees, contractors or others when they leave public service employment, outside of statutory or contractual entitlements. These payments may arise in cases of resignation, retirement, dismissal, or upon an agreed termination of employment. They are distinct from ex gratia or compensation payments.  

What is the current position?

Under the College Financial Handbook, which was last updated in July 2025, Department for Education (DfE) approval is required before you make any binding offer if the severance payment (including non-statutory or non-contractual element) is £50,000 or more, or the proposed severance payment is equivalent to three months' salary or more. In both cases this is gross, before deductions. 

You must also consider the following:

• Is it appropriate? For example, severance payments should not be made to staff with poor performance or in cases of misconduct. 
• What are the associated costs and likelihood of successfully defending the case at tribunal? Where a legal assessment suggests you are likely to be successful, a settlement should not be offered. 
• Can you clearly document the management and approval process which must take account of your own internal processes and employment law? 
• Can you demonstrate that it is value for money?
• Do you have evidence to support any non-financial considerations?

You must also ensure that the use of confidentiality clauses does not prevent an individual's right to make disclosures in the public interest under the Public Interest Disclosure Act 1998. 

Anticipated change

Trusted sources indicate that DfE approval will no longer be required for severance payments equivalent to three month's salary or more, provided the total does not exceed £50,000. It is understood that this will apply retrospectively from 1 August 2025. But nothing has been formally announced yet.

If implemented, only payments above £50,000 would trigger the need for approval. 

The rules around ensuring severance payments are appropriate, represent good value for money, and the other considerations set out above, are likely to remain in place. 

If this happens, FE colleges would be aligned with Academy Trusts, where DfE approval is only required for severance payments of £50,000 or more as set out in the Academy Trust Handbook. 

Importantly, this has not yet been formally confirmed, and the College Financial Handbook has not changed. We therefore strongly recommend that you seek legal advice. Please speak to Jenny Arrowsmith for more information. 

Staying up to date

We are monitoring the position and will update you once the College Financial Handbook is formally updated.  

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