HM Treasury’s Updated Guidance on Special Severance Payments- What You Need to Know

On 28 July 2025, HM Treasury introduced changes to its guidance on special severance payments for public sector employers.

These payments, which fall outside statutory or contractual entitlements, have been subject to strict controls but some payments can now be made without prior approval. This does not apply to NHS organisations, which remain bound by the original requirements.

Key Change in the Rules

Before July 2025, every special severance payment required HM Treasury approval, regardless of the size of the employer.

However, now Departmental Accounting Officers (DAOs) can approve payments under £100,000.00 without Treasury involvement but only if the payment is not “novel, contentious or repercussive” and does not involve senior staff or high earners (now £174,000 per year).

Unfortunately, NHS employers are excluded from this because they do not have DAOs.

What Counts as a Special Severance Payment?

Special severance payments include sums agreed under settlement agreements, payments arising from mediation, extended benefits beyond an employee’s exit date, gardening leave, hardship payments, and certain compensation in lieu of notice.

They do not include statutory redundancy, accrued annual leave, or sums ordered by a court or tribunal. This distinction matters because only the former category triggers the Treasury approval process.

When Treasury Approval Still Applies

Treasury approval remains mandatory where a payment is “novel, contentious, or repercussive”. Even under the new delegated limits, Treasury approval is required if:

• The payment is not affordable to the department or organisation;
• The case is high-profile or likely to be contentious (including attracting media attention);
• The payment could set a precedent or impact wider policy;
• The payment is made under a settlement agreement which contains a confidentiality clause;
• It could be perceived as rewarding failure or poor performance;
• Legal advice suggests the employer has a strong defence (>50% chance of success);

Key Points

It’s still important to note that the Government’s default position remains not to settle claims and HM Treasury will apply close scrutiny to ensure that special severance payments are only made in exceptional circumstances and represent value for money for the government as a whole.

Further, Treasury approval takes at least 20 working days, often longer. Early planning is essential to avoid delays.

The NHS have confirmed that they will be updating their own guidance on the process for making special severance payments in light of the HM Treasury’s new stance.

If you are an employer or employee affected by the above issue and want advice or support in connection with the same, or any employment law or HR issues more generally, please do not hesitate to contact Attwells Solicitors’ Legal 500 Recommended Employment Law Team on 01206 239 761.