Payment in lieu of notice

An employer can opt to make a payment in lieu of notice (PILON) instead of requiring the employee to work their whole notice, as long as the employment contract allows this. It is generally up to the employer to decide whether to exercise a contractual right to pay wages in lieu of notice instead of making the employee work out their notice. The employee is not entitled to demand this (Cerberus Software v Rowley [2001] IRLR 160).

An employer who has the contractual right to make a payment in lieu of notice also has the implied contractual duty to tell the employee clearly that the right is being exercised, and when the contract will end (Societe Generale v Geys [2012] UKSC 63).

Notice payments made under a PILON clause are paid net of tax and national insurance, because they are taxable earnings.