What is Payment in Lieu of Notice (PILON)?

Payment in Lieu of Notice, commonly known as PILON, is a clause in an employment contract that enables an employer to terminate an employee's employment immediately by providing compensation equivalent to the notice period stipulated in the contract. It allows the employer to avoid the employee working during their notice period.

How does Payment in Lieu of Notice work?

If an employment contract includes a PILON clause, the employer can terminate the employment immediately and compensate the employee with an amount equal to what they would have earned during their notice period.

How is Payment in Lieu of Notice calculated?

PILON is calculated based on the employee's salary and the duration of the notice period specified in their contract. It involves multiplying the employee's salary by the number of days, weeks, or months in the notice period.

Is tax applicable to Payment in Lieu of Notice (PILON)?

Yes, PILON is considered taxable income. It is subject to income tax and National Insurance contributions (NICs) in the same manner as regular salary or wages. Employers must deduct and remit the employee's income tax and NICs on the PILON payment, similar to regular payroll payments.

What is the difference between PILON and garden leave?

PILON and garden leave are distinct concepts. PILON involves immediate termination with compensation in lieu of the notice period, while garden leave allows employers to place employees on leave, often with pay, for a specified period following notice of termination. Garden leave typically restricts employees from working for other organizations during the leave period.