Bite-size finance guides issued for colleges following reclassification

Colleges given guidance on senior pay controls, write-offs and severance payments following reclassification

Colleges given guidance on senior pay controls, write-offs and severance payments following reclassification

31 Jan 2023, 16:22

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A series of “bite-size guides” have been published by the Department for Education to help colleges meet their new requirements since being reclassified as public sector organisations.

Guides for five areas were published on Tuesday morning, covering senior pay controls, write-offs and losses, severance packages, indemnity guarantees and novel transactions.

In November last year the Office for National Statistics reclassified colleges as public sector organisations, which subjects them to certain public sector spending requirements.

Here is what you need to know from each of the guides.

Senior pay controls

Public sector rules mean that government approval must be sought for senior pay of public sector workers above £150,000 and bonuses in excess of £17,500.

That will apply to senior college staff from May 2023, with today’s guidance explaining that colleges will be required to submit one form for each clearance request.

From May, appointments newly advertised above the £150,000 threshold and £17,500 bonus must already have secured clearance from the DfE and Treasury – including for both new roles and new appointments to existing roles.

For those already earning at or above the threshold, approval will be required for pay awards above 9 per cent from May, as will those earning below the threshold currently where a pay rise of 9 per cent or more will take them over the £150,000.

Colleges will need to provide justification for the proposed pay, and applications should consider the type and size of provider as well as other pay in the region in their applications.

A formal deadline hasn’t been issued, but applications will be accepted from February 1 and a minimum of two months should be allowed for clearance.

The latest college accounts show that 78 college principals had salaries over the threshold and four received eligible bonuses in 2020/21.

Write-offs and losses

The Treasury’s managing public money framework now applies to FE colleges and says that losses and write-offs come under additional controls.

Colleges are told that they should only accept write-offs and losses after considering whether “all reasonable action has been taken to effect recovery,” and are “satisfied that there is no feasible alternative”.

College bosses will be required to clearly document the circumstances of the financial situation, the rationale for a proposed write-off, and the cost effectiveness of any recovery action.

In addition, the guidance says that recipients who acted in good faith can use that in their defence but is not sufficient alone to result in non-recovery of public cash. Money recovery should always be pursued where recipients have acted in bad faith, it said, such as actively hiding necessary facts, or failing to give accurate or timely information.

Suspected fraud and internal controls must also be considered, and colleges have been told they should keep up-to-date records of losses and recovery attempts.

Colleges will be allowed to write-off relatively small amounts, but DfE approval must be sought where it exceeds either £45,000 or 1 per cent of annual income, or where write-off takes the college’s total write-offs for the year beyond £250,000 or 5 per cent of income (whichever is smaller).

However, colleges should seek approval if the write-offs are novel, might create a precedent in other colleges, arise because of ambiguous central instructions, or raise ”important questions of principle”.

Special payments

Special payments include severance pay for staff, compensation payments which go beyond contractual or statutory entitlement, or ex-gratia payments.

DfE approval will be needed for severance payments of £50,000 or more before tax, if it is equivalent to three months’ salary, where they earn £150,000 or more, or where an exit package exceeds £100,000.

Severance payments of any amount that are linked to non-disclosure agreements will also need DfE sign-off.

Guidance says that special severance should not be used as a “soft option” to avoid management action or disciplinary proceedings, or paid to poor performing staff.

Colleges will need to document legal and HR advice, and consider appropriate levels of pay out. In addition, any confidentiality clauses cannot prevent the individual’s right to whistleblowing in the public interest.

For compensation pay outs, such as injury cases, colleges get delegated authority for amounts up to £50,000.

Ex-gratia payments must always gain DfE approval.

Indemnities and letters of comfort

The DfE says indemnity contracts in colleges could include contracts around catering, data-sharing, utilities, commercial IT or land transfers.

Guidance says that college leaders should assess their contracts to determine whether the indemnities they hold are within the normal course of business, and maintain a contract register.

Caution should also be used on issuing letters of comfort as they may bring about liabilities, the DfE warned.

No government approval is needed if indemnity contracts are in the ordinary course of business, but approval is needed for those not considered ordinary and for letters of comfort or guarantees where the case exceeds 1 per cent of annual income or £45,000 individually, or takes the total contingent liabilities beyond 5 per cent of annual income or £250,000 (whichever is lower).

Governors are expected to challenge and provide oversight to make sure up-to-date records are kept.

Novel, contentious and repercussive transactions

The DfE says that transactions considered novel, contentious or repercussive will always require DfE sign-off before being made, but doesn’t necessarily mean they are forbidden.

Requests can be referred to the Treasury too, so colleges are advised to allow plenty of time for them to be considered.

The government considers novel transactions to be those outside of a college’s normal business or which it has no experience of, while contentious transactions are those which could attract criticism from Parliament, the public or media. Repercussive transactions are those which may set a precedent or have wider financial impact in the sector.

No threshold for those deals have been set as all will require DfE approval.

The DfE says reputational risk, value for money, financial exposure and propriety will be considered, and colleges should set out their requests as a business case outlining the risks and opportunities, benefits and drawbacks.

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