College Financial Handbook 2026 published: key employment changes for colleges

The Department for Education (DfE) has published the updated College Financial Handbook 2026 (the handbook), which takes effect from 1 August 2026. Although the handbook is primarily a financial governance document, many of the 2026 changes will impact HR teams, senior leaders and those involved in remuneration and workforce planning within further education and sixth-form colleges.  

This article highlights the key employment-related developments that colleges should be aware of.

Special staff severance payments: increased oversight

A notable workforce-related governance change concerns special staff severance payments.

The handbook aligns college obligations more closely with updated HM Treasury guidance and reiterates that special staff severance payments should be exceptional and should not be used to avoid performance management, disciplinary processes or reputational difficulties.  According to the handbook, colleges have a responsibility for ensuring that special staff severance payments are only made when there is a clear justification for doing so. In addition, colleges must ensure that all relevant internal policies and procedures are followed and all alternative actions are fully explored and documented before agreeing exit packages with departing employees.

The handbook makes clear that where legal advice suggests that a college has more than a 50% prospect of successfully defending a claim, a special staff severance payment will automatically be considered contentious and therefore must be referred to the DfE for approval. Whilst this emphasis on the potential merits of a claim has always been a relevant factor (and is referred to in the Guidance on Public Sector Exit Payments), the new version of the handbook references the point more than once, and makes the position clearer than it has been previously. 

The handbook now specifically refers to requirement to follow the HM Treasury Guidance on Public Sector Exit Payments and also mentions new DfE guidance on special severance payments, which will be published ‘in due course’.

The 2025 version of the handbook was updated in October 2025 to state that confidentiality clauses associated with staff severance payments are novel, contentious or repercussive so must not be used unless the college has obtained prior DfE approval. These provisions have been further clarified, with the handbook. 

These changes demonstrate the government's continuing focus on transparency and value for money in the use of public funds. Colleges should therefore ensure that settlement negotiations, business cases and legal advice are thoroughly documented and that approval requirements are identified before any offers are made.

Chief Financial Officer qualifications: raising expectations

The handbook introduces a strengthened expectation that Chief Financial Officers (CFOs) in larger colleges should hold a professional accountancy qualification and be a member of a recognised professional accountancy body. For colleges with more than 3,000 students, recruitment exercises commencing on or after 1 August 2026 should specify that the successful candidate is a qualified accountant. From 1 August 2027, this will become a mandatory requirement for new recruitment exercises and where a college with more than 3,000 students intends to appoint a CFO who is not professionally qualified, it will need to notify the DfE in advance and explain its reasons. 

This change reflects the DfE's continued focus on strengthening financial expertise within the sector following college reclassification. Colleges may therefore wish to review succession planning arrangements and future recruitment strategies now, particularly where a current CFO is approaching retirement or where a vacancy may arise in the next few years.

The handbook also places greater emphasis on ensuring boards and relevant committees possess sufficient financial expertise and receive appropriate training to challenge and scrutinise executive decision-making effectively. 

Senior pay controls: scrutiny of high earners

The 2026 handbook updates the provisions relating to senior pay controls to reflect more recent HM Treasury guidance.

Colleges remain subject to central government senior pay controls, with approval generally required for new appointments exceeding the relevant remuneration thresholds. The handbook now states that approval does not need to be sought for existing staff if the role has had previous approval from HM Treasury and the total remuneration and performance related pay are the same or below what the incumbent receives, or involves an increase of 5% or less (previously this was 2% or less) and the previous HM Treasury approval placed no conditions on the incumbent or subsequent recruitments. As before, colleges must notify the department of their use of this flexibility within one month of the appointment being made. Colleges must continue to approach senior remuneration decisions carefully and ensure that any approval requirements are identified early in the process.

From a governance perspective, remuneration committees should review their procedures and ensure they understand when DfE and Treasury approval may be required before making offers or confirming salary increases.

Pension arrangements: new requirement to consult DfE

The handbook also introduces an important new requirement in relation to pension provsion.

It reinforces the obligation on colleges to comply with the Teachers' Pension Scheme (TPS), the Local Government Pension Scheme (LGPS) and HM Treasury's "New Fair Deal" requirements. In addition, from 1 August 2026, any college proposing to introduce a pension scheme that is not TPS or LGPS must consult with the DfE before details are shared with employees. This reflects the government's desire to maintain oversight and ensure consistency with public sector pension arrangements.

Electric vehicle salary sacrifice schemes: greater flexibility

A welcome development for many colleges is the clarification that electric vehicle (EV) salary sacrifice schemes no longer require prior DfE approval. 

Colleges may now introduce EV salary sacrifice arrangements without seeking DfE permission, provided they have robust safeguards in place to ensure that no costs or liabilities fall on the college if an employee's circumstances change during the term of the arrangement. The handbook specifically requires colleges to have comprehensive mitigations against potential financial risks to the college.  Further guidance on electric vehicle salary sacrifice for colleges and academy trusts has been published and can be accessed here.

This change reflects the growing popularity of EV salary sacrifice schemes as part of wider employee benefits packages. Such schemes can support recruitment, retention and sustainability objectives while enabling employees to access electric vehicles in a tax-efficient manner.

Commentary

The employment-related changes in the College Financial Handbook 2026 continue a clear trend towards increased public sector oversight following the reclassification of colleges in late 2022. There seems to be a narrowing of the circumstances in which colleges can enter into settlement agreements with departing employees, especially where any payments are being made which are over and above statutory or contractual rights. Whilst colleges are not prohibited from agreeing exit packages, they are required to carefully consider whether any of the triggers for DfE approval are present before entering into negotiations with employees and their reps. Seeking early legal advice will be key.  

The changes reinforce the expectation on colleges to operate with strong financial governance, robust scrutiny and clear accountability for senior workforce decisions. The enhanced CFO requirements and greater focus on board financial expertise indicate an ongoing drive to strengthen financial leadership, while the changes to severance payments and senior pay controls demonstrate continuing sensitivity around the use of public funds.

At the same time, the removal of approval requirements for EV salary sacrifice schemes provides a degree of welcome flexibility and recognises the increasing role of employee benefits in supporting recruitment and retention.

As the handbook takes effect from 1 August 2026, colleges should review their recruitment, remuneration, pension and settlement agreement processes to ensure they remain compliant with the updated requirements and governance expectations.