Payment in lieu of notice (PILON)

A payment in lieu of notice (PILON) is money your employer pays you instead of letting you work your notice period. According to GOV.UK, your job can end without notice if your contract includes a PILON clause, and you get all the basic pay you would have received during the notice, plus extras such as pension contributions if your contract gives them. An employer can also offer a PILON when the contract does not mention one.

Statutory minimum notice is at least 1 week after 1 month's service, 1 week for each full year from 2 to 12 years, and 12 weeks after 12 years. Your contract can give more, but not less.

For jobs ending on or after 6 April 2018, HMRC's Employment Income Manual (EIM13874 and EIM13876) treats pay for unworked notice as post-employment notice pay. It is taxed as earnings, gets none of the £30,000 tax-free threshold that applies to redundancy pay, and attracts Class 1 National Insurance. Garden leave is different: you are given notice but told to stay at home, so the pay is ordinary salary (EIM12975).

Example: you earn £700 a week, have 6 full years of service and are let go at once. Your statutory notice is 6 weeks, so your PILON is at least £4,200, taxed through PAYE like salary. A £15,000 redundancy payment made alongside it stays tax-free, because it is within the £30,000 threshold.

Work out statutory redundancy pay with the redundancy pay calculator, and read how redundancy pay is taxed.