Payment in lieu of notice
Payment in lieu of notice (PILON) is money paid when employment ends without the employee working some or all of their notice period.
PILON ends employment instead of extending it
With payment in lieu of notice, employment normally ends immediately rather than continuing through the notice period. The employee receives money instead of working some or all of that time. Use the actual termination date for the employment record and distinguish it from the period represented by the payment.
Garden leave works differently because employment, pay, benefits and contractual duties continue until notice expires. The Acas notice guidance explains both arrangements. Choosing the wrong label can create confusion about service, benefits and access.
Check the clause or reach agreement
A contractual PILON clause may authorise immediate termination, but its exact wording matters. It may also say what the payment includes. If there is no clause, ask the employee to agree and record that agreement. A unilateral dismissal with a payment can still breach the contract even when the amount looks sufficient.
Calculate and document the payment
Record the clause or agreement relied on, the termination date, the notice not worked and every component of the payment. Basic notice pay may be clear, while benefits, bonus and commission depend on the contract, clause and circumstances. Deal separately with untaken holiday and other final pay. Tax treatment should be checked through payroll rather than guessed from the label.
The related calculator shows minimum statutory notice only. Use that as one input, then calculate contractual notice, PILON, benefits, bonus, commission, holiday pay and tax separately.
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