Notice and final pay
Payment in lieu of notice (PILON)
Your employer ends the job today and pays the notice period instead of letting you work it: what that payment has to contain, and what it changes.
Checked by Radif Partners · Editorial policy · Method and sources
Payment in lieu of notice, often shortened to PILON, is a sum an employer pays so that employment can end immediately instead of at the end of a notice period. An employer can do this without breaking the contract only when the contract contains a PILON clause or you agree; otherwise ending the job early is a breach, and the payment is in substance damages. GOV.UK says you should get all the basic pay you would have earned during the notice, plus contractual extras such as pension contributions or private health cover when the contract provides them. The notice length is the longer of your contract and the statutory scale of 1 to 12 weeks. Since 6 April 2018 the basic pay for unworked notice is taxed as earnings under HMRC’s post-employment notice pay rules, whether or not there is a clause, and the £30,000 tax-free threshold for termination payments does not cover it. For redundancy pay, a PILON pushes the date used for service and age to the end of the statutory notice.
What your notice is worth if paid in lieu
Payment in lieu of notice, gross
£5,880
| Basic pay for the notice weeks | £5,520 |
| Pension, health cover and other extras | £360 |
| Covered by the £30,000 threshold | £0 |
Pay in lieu of notice is taxed as earnings: the redundancy threshold never applies to it.
Clause, agreement or breach
Whether a PILON is lawful depends on the paperwork, not on the amount. Three situations cover nearly every case.
- The contract has a PILON clause. The employer may end the job at once and pay the notice instead. That is performance of the contract, not a breach. The clause usually says what is paid; if it only mentions “basic salary”, extras may be left out.
- No clause, but you agree. GOV.UK says your employer may still offer a payment in lieu even if your contract does not mention it, and that if you accept you should receive full pay and any contractual extras. Get the offer in writing.
- No clause and no agreement. Sending you home without notice is a breach of contract. What you can claim is damages for the lost notice: in most cases the pay and benefits you would have had. nidirect notes that some employers pay a sum simply to cover that potential claim.
Section 86(3) of the Employment Rights Act 1996 confirms that the statutory notice rules do not stop either party from accepting a payment in lieu. The weeks you are paid for are those of your notice entitlement: the contract figure or the statutory one, whichever is longer, as worked out in the statutory notice guide.
What the payment should contain
Take someone with ten years of service and an eight-week clause, paid in lieu on 13 November 2026. The statute gives 10 weeks, more than the clause, so 10 weeks are due. At £700 a week basic, plus £38 a week of employer pension contributions under the contract:
| Element | Basis | Amount |
|---|---|---|
| Basic pay | 10 weeks × £700 | £7,000 |
| Contractual pension contributions | 10 weeks × £38 | £380 |
| Total payment in lieu | £7,380 |
If your pay varies, a week’s pay for notice is the average over the 12 weeks before notice starts (GOV.UK), including commission and regular overtime; a week’s pay explained sets out the rules. Holiday accrued up to the termination date is paid separately under the Working Time Regulations, and with a PILON that date is the day you leave, so no further holiday builds up during the weeks you are paid for. On garden leave it does, because you are still employed.
Tax: post-employment notice pay
From 6 April 2018 the tax rules stopped caring whether there was a clause. HMRC’s manual (EIM13505) says the £30,000 threshold does not apply to post-employment notice pay, which is the basic pay for the part of the notice you did not work. It goes through payroll and is taxed like salary. Only what is left of a termination award after that slice, typically statutory and enhanced redundancy pay, can use the threshold.
With the ten-year example, a package of £9,000 statutory redundancy pay and £18,000 enhancement keeps all £27,000 of redundancy money inside the threshold, while the £7,000 of notice pay is taxed in full. Some older pages, including nidirect’s notice pay article, still describe the earlier position, where a non-contractual PILON could fall under the threshold; HMRC’s current manual is the reference. The page on redundancy pay and tax covers the threshold itself.
The knock-on effect on redundancy pay
A PILON ends employment early, but section 145(5) stops that from costing you service. When the employer gives less than the statutory minimum notice, the relevant date for counting years and age becomes the day the statutory notice would have ended. In the example from the questions above, the employee is 1 week short of two years on the day of the PILON; the extended date of 20 November 2026 gives 2 complete years and a statutory payment of £1,120. The weekly cap, however, is the one in force on the real termination date. The relevant date guide works through more cases, and the final pay calculator adds notice, redundancy and holiday together.