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 a contractual right to make a PILON 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).



An employer who does not have the contractual right to make a PILON will breach the contract of employment if they end the contract early without the employee’s agreement. For a good example, see the case of Missirilis v Queen Mary University [2016 UKEAT/0038/15/LA, discussed on page 426 of Chapter 11. This case involved an employer that ended the notice period of a "troublesome" employee early, by paying a "PILON" in breach of contract to try to avoid redeployment obligations.


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



In August 2016, HM Revenue and Customs (HMRC) consulted on planned changes the taxation of termination payments, intended to come into force April 201 8, subject to the outcome of the June 2017 general election. The main changes proposed are as follows:


• all PILONs are to be taxable, even if they are non-contractual;


• employer national insurance contributions must be paid on sums over £30,000 (not currently payable); and


• payments for injury to feelings are to be taxable.