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1Fix the driver behind crashes, sound loss and screen glitches2Repair Windows errors before they cause bigger problems3Scan for outdated or missing drivers - takes under a minutePay in lieu of notice (PILON) is pay an employer provides instead of requiring an employee to work some or all of their notice period. In the UK, whether an employer can end employment immediately this way depends on the contract or the employee’s agreement. PILON is different from garden leave, and its tax treatment depends on the arrangement.
How pay in lieu of notice works
When employment ends, notice is usually a period between giving notice and the final day of employment. With PILON, the employer pays for the notice period being replaced and the employee stops working straight away. Acas says that where a contractual PILON clause applies, the employer must give full pay for the notice period. Acas explains when an employee may not have to work notice.
The exact effect depends on the arrangement. In Acas’s description of contractual PILON, employment ends immediately; the notice period is paid rather than worked.
Can an employer make you take PILON?
Check your employment contract first. If it contains a PILON clause that applies to your situation, the employer may be able to end your employment immediately and pay you for the notice period. If there is no applicable clause, Acas says the employer can ask you to agree to PILON but cannot force you to do so. Ending employment early without the required contractual basis or your agreement may lead to a breach-of-contract claim.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchRead the termination letter alongside the contract. Check the stated termination date, the notice length, whether the employer is relying on a PILON clause, and whether the payment is described as contractual or agreed. If you are unsure about your rights or are being asked to sign a settlement agreement, consider getting qualified employment advice. Acas advises employers to seek legal advice when considering PILON that is not in the contract.
How much should PILON be?
There is no single gross-amount formula that applies to every situation. Acas says contractual PILON should provide full pay for the notice period; an agreed payment should reflect what the employee would have received during that period. The contract and agreement determine which components apply, so do not assume that every payment includes the same benefits or extras.
Use the written breakdown to check how the employer has treated each item. Acas’s settlement-agreement guidance says the agreement should specify the PILON amount and addresses wages or salary, bonuses or commission, and accrued holiday. Whether any particular bonus, commission, benefit, holiday payment, or pension contribution is due depends on the applicable contract and circumstances. Acas’s settlement agreement guidance explains what to consider when setting out payments.
PILON versus garden leave
Both arrangements can mean you do not work during some or all of notice, but they differ in whether employment continues.
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| Question | PILON | Garden leave |
|---|---|---|
| Do you work? | No work during the notice period being replaced. | The employer may tell you not to work during some or all of notice. |
| Does employment continue through notice? | In Acas’s contractual PILON description, employment ends straight away. | Yes. HMRC says employment continues until the termination date. |
| What is paid? | Full pay for the notice period under Acas guidance; applicable components depend on the contract and agreement. | Usual pay and contractual benefits during notice under Acas guidance. |
| Why does the distinction matter? | The immediate end date and terms of the arrangement affect the relevant treatment. | Payment is salary during continuing employment, rather than necessarily a payment in lieu. |
Acas notes that where contractual PILON ends employment immediately, it is “unlikely they’ll have to provide other contractual benefits.” That is not a guarantee about every benefit or payment: check the contract and the written terms of the termination.
Is PILON taxable in the UK?
UK tax treatment depends on what the payment represents and how the employment ends. HMRC treats contractual PILON as employment earnings. A separate tax concept, post-employment notice pay (PENP), can apply when an employee receives no notice or less than their contractual or statutory notice entitlement. PENP represents basic pay for the notice period the employee would otherwise have worked and is taxable as general earnings. HMRC’s guidance on PILON and garden leave and its guidance on PENP set out the distinction.
HMRC says the relevant termination-payment rules took effect on 6 April 2018. The £30,000 threshold available for certain termination awards does not apply to PENP. It is therefore inaccurate to assume that every termination payment is tax-free up to £30,000, or that all PILON arrangements receive identical tax treatment. HMRC describes PENP as a separate calculation using a statutory formula; it is not a universal formula for calculating contractual PILON. The employer must calculate taxable PENP where relevant, so check the itemized breakdown if the tax treatment is unclear.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What to check in your paperwork
- Your employment contract and whether it contains a PILON clause that applies.
- The termination letter’s stated end date and notice period.
- Whether the arrangement is contractual PILON, agreed PILON, or garden leave.
- An itemized breakdown showing PILON, salary or wages, any bonus or commission, accrued holiday, and any other agreed payments.
- How the employer has treated taxable PENP, if it applies.
Acas guidance may not apply to everyone described as a worker: agency, casual, and zero-hours workers may not be employees for the purposes of this guidance. If your employment status or entitlement is disputed, get advice specific to your circumstances.
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