Payment in lieu of notice

An employer can opt to make a payment in lieu of notice (PILON) to the employee instead of requiring them to work their notice if the contract wording allows this. Where the contract contains this kind of term, it is up to the employer to decide whether to pay wages in lieu of notice, as opposed to requiring the employee to work out their notice. It makes no difference that, as a result of the employer’s decision, the employee loses out on a contractual benefit, such as a bonus that depended on them being employed during the period covered by the notice. The employee is not entitled to demand that the employer pays (or does not pay) a PILON (Cerberus Software v Rowley [2001] IRLR 160).

An employer that decides to exercise a contractual right to make a PILON has a legal 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 under a PILON clause attract PAYE tax and National Insurance because they are wages.