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The concept was first introduced during the 2006-07 season and later overhauled from the 2016-17 season on.
Initially, parachute payments were distributed over the course of four years, but the 2015 change reduced that time period to three years and just two in the case of teams that spent just one season in the Premier League.
Parachute payments work in tandem with solidarity payments, with an overall value of £100m, which are distributed among all other English Football League clubs each season.
The solidarity payments are intended to offset the potential for competitive disparity between clubs that could arise out of parachute payment