Pay in lieu of notice

Pay in lieu of notice (PILON) means your job ends straight away and your employer pays you the money you would have earned for the notice period. Your employer can only impose it if your contract has a PILON clause. Without one, you have to agree. Either way you get full pay for the notice period, and it is taxed as earnings.

When the contract allows it

A clause in your contract may let your employer end your employment at once and pay instead of letting you work your notice. Acas says that, depending on the wording, the employer might be able to insist on it. You stop work immediately and are paid in full for the notice period.

Because your contract ends on that day, Acas says other contractual benefits are unlikely to be owed for the notice period. A benefit that would have run on through notice may stop when you leave. If you are offered PILON, ask in writing which benefits stop and when.

When there is no clause

Without a clause, your employer cannot force PILON on you. It can ask you to agree to it. If you do, it must pay your full notice pay, and you may be able to negotiate other contractual benefits as well. If your employer dismisses you before your notice ends and has no right to pay in lieu, you could bring a breach of contract claim at an employment tribunal. Acas says employers who are considering PILON without a clause should take legal advice.

An agreement does not have to be written to count. Acas says PILON may be in the contract or agreed verbally, and if it is agreed verbally you should keep a written record.

How it differs from other endings

PILON is not garden leave, where you stay employed, stay on the payroll and keep your benefits. Our garden leave guide covers that. It is also separate from the redundancy payment, which is a different sum paid for losing your job. It is not the same as agreeing to leave early at your own request, where your employer only has to pay for the time you worked.

Dismissal for gross misconduct carries no entitlement to notice, so no notice pay is due. The Acas page on pay during notice says so, though a dispute over whether conduct really was gross misconduct is a matter for the disciplinary procedure.

How PILON is taxed

gov.uk treats pay for the notice period as taxable earnings, whether it is a PILON or part of a severance payment. Tax and National Insurance apply to the part that matches what you would have earned by working your notice. This taxable notice amount is called post-employment notice pay (PENP), and your employer calculates it.

The rules for a larger payment are more specific. The first combined £30,000 of statutory redundancy pay, extra severance or enhanced redundancy pay, and non-cash benefits is usually not taxed. The taxable notice amount is taken from the severance, not from the statutory redundancy pay, which is not subject to PENP.

Say your notice would have been four weeks at £500 a week, so PENP is £2,000. You are paid £10,000 statutory redundancy plus £5,000 severance. The statutory pay is not taxed. Of the £5,000 severance, £2,000 is taxed as notice pay and £3,000 falls within the £30,000. These are the figures in gov.uk’s first example. The redundancy pay tax guide goes through the split in more detail, and the take-home pay calculator shows what ordinary pay looks like after tax.

Your employer is responsible for taxing the payment correctly. If a payslip looks wrong, ask payroll to explain the figures, then HMRC if the answer does not satisfy you.

What to check before you accept

• Whether your contract has a PILON clause and what it says about how the payment is calculated
• The exact leaving date and the amount, in writing
• Which benefits stop on the leaving date
• Whether your pay is fixed or varies, because Acas says employers should take legal advice to work out the right amount for variable hours

For notice scales and what the law requires in general, see the notice periods guide. If a PILON arrives as part of a redundancy, our redundancy rights guide lists the other things you are owed.