Clubs in League One and League Two have voted in favour of introducing a salary cap, taking effect immediately.
Limits have been set at £2.5m and £1.5m for the respective divisions.
Wages, bonuses, taxes and image rights, plus agents’ and other relevant fees, will be included within the cap but income gained from promotion or progression in cups will be exempt.
Clubs will be fined or face further sanctions if they exceed the spending limits.
A statement from the English Football League (EFL) said: “The decision follows extensive and comprehensive consultation with all clubs in respect of addressing sustainability and wage inflation issues across the EFL, which were initiated prior to the suspension of football in March following the Covid-19 outbreak and have continued during the course of the summer.
“Those discussions culminated in today’s divisional vote, with representatives of League One and League Two clubs opting to implement the new measures in place of the existing salary cost management protocols.”
The statement added that clubs in the third and fourth tiers are talking about “additional measures aimed at addressing club financial sustainability”, while Championship clubs are continuing discussions “in respect to amendments to their own financial controls”.
Before Friday’s vote, the Professional Footballers’ Association (PFA) said it had “concerns that the proposed cap is being rushed through, without proper consideration or consultation”.
EFL chief executive David Baldwin added: “The term ‘salary cap’ is an emotive one, creating the impression of a restrictive measure but we are clear in our view that this is neither the objective nor the likely effect of these changes to EFL regulations.
“The financial impact of Covid-19 will be profound for EFL clubs and today’s vote will help ensure clubs cannot extend themselves to the point that could cause financial instability.
“Over the last two weeks the discussions amongst clubs in both Leagues One and Two have been healthy and constructive, allowing us to reach a clear consensus and I am pleased that the clubs have determined to adopt the new approach.
“We will now work with all clubs, the PFA and, where appropriate, other stakeholders to implement the new rules and continue our efforts to bring long-term sustainability to the EFL.”
What happens if a club exceeds the cap?
If a club is over the salary cap by up to 5%, they will face a financial penalty for every £1 by which they exceed the limit.
Any club exceeding the ‘overrun’ will be referred to an independent disciplinary commission for further sanction.
And what about clubs moving between divisions?
The EFL says “transition agreements” have been incorporated for relegated clubs and players on longer-term contracts.
Their statement added: “Any contract entered into on or prior to the vote will be capped at an agreed divisional average until that contract expires.
“Moving forwards, clubs that are relegated will be permitted to cap all contracts at the divisional average prior to the club’s relegation until those contracts expire.”
A group of National League clubs are in favour of introducing a cap via a vote at the League’s AGM.
It is understood their planned limits are:
– National League: £900k
– Step 2: £600k