Auditor-General's overview

Severance payments: A guide for the public sector.

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

We all expect employers to act in good faith and follow good human resources practices to avoid employment relationship breakdowns. But sometimes when employment difficulties arise, ending the employment relationship with an agreed severance payment can be a reasonable and appropriate decision. This is particularly so when the parties are in dispute, which creates its own risks and costs.

Severance payments are payments additional to what a person is entitled to under their employment agreement, as part of an agreement to end the employment relationship.

Because severance payments are discretionary and sometimes large, they are likely to come under scrutiny and might attract media or other interest. I encourage public organisations to take a principled and practical approach to these situations. The basic principles of accountability, integrity, and fairness always need to be considered.

The risks associated with severance payments have led Parliament to include disclosure requirements in several Acts of Parliament, including the Crown Entities Act 2004 and the Local Government Act 2002. As part of the normal audit work each year, the auditors I appoint check whether required disclosures have been properly made. The auditors may also comment on severance payments that are unusual or not in keeping with public sector expectations.

Public sector employers need to make sure that they have good reasons for making a severance payment, that the level and form of the payment is appropriate, and that the decision is properly authorised. Severance payments must be based on a careful assessment of the costs, benefits, and risks of the approach, and on proper legal and tax advice. Employers need to be aware that they should not promise complete confidentiality as it can be overridden by statutory disclosure requirements.

I commend this good practice guide to all public sector employers.

Nāku noa, nā,

Signature - JR

John Ryan
Controller and Auditor-General

26 June 2019

Photo acknowledgement: Chris Tse