Read more items tagged with the same topics End of employment. Payments on termination. Pay in lieu of notice. About this resource Status This resource is kept under review and updated in line with developments. Publisher XpertHR. When To Include Ok. Book my demo. Learn more Customers Pricing Take a free trial. Get in touch Contact us Feedback Subscribe. If an employer decides to make a PILON, they must provide written notice of this decision to the employee.
It is, however, important to remember that even though the employment contract has ended, the employee may still have duties under it, such as confidentiality obligations and restrictive covenants, which may prevent them from working for certain competitors or taking other employees with them. Where an employee is summarily dismissed for gross misconduct, it is usually unlikely that a PILON will be made. Payment in lieu of notice is often be made in redundancy situations.
If the employee has worked for the employer for more than one month, they will have a statutory right to be given a certain amount of notice. This has to be the minimum notice period by law:. In the case of redundancy, employers can terminate the contracts of employees being made redundant immediately, meaning the employees do not have to work their notice period. In such cases, the employees should still by law be paid for the notice period.
This should be communicated to the employees as part of the redundancy consultation process. Payment may be wrapped up with any redundancy or termination payments made by the employer to the employee.
However, for tax reasons, it is important to be clear as to what constitutes the PILON and what is a termination payment. PILON is not to be confused with garden leave which is a separate concept. Because the employment has terminated, the relationship between the employer and employee has ended, the employment contract terms are no longer binding and the employee is free, for example, to find work elsewhere.
If an employee is placed on garden leave, their employment contract will remain effective for the duration of the period of leave until the date the contract is terminated.
This means they are still employed by their employer for the garden leave period but are not required to go into their place of work. They will continue to be paid and accrue their rights and benefits in the usual way during the garden leave period and technically they could be required by their employer to undertake work. PILON is taxable and this is the case regardless of whether the payment is made in accordance with the employment contract or otherwise.
The rules and calculations are however complex. Essentially, an employee will pay income tax and Class 1 National Insurance Contributions NICs on the amount of basic pay which they would have been paid had they continued to be employed during their notice period.
This amount is known as PENP or post-employment notice pay. Any amount paid in addition to PENP will be classified as termination payment and taxed accordingly.
In calculating PENP, the notice period to be taken into account is that to be given by the employer, not the employee if they are different and is the longer of either statutory notice or contractual notice. In addition, it does not include any statutory redundancy payment and possibly any contractual redundancy payment , which will be deemed a termination payment. So, by way of example, Emma is told that she is being dismissed with immediate effect. In the previous pay period, there were 30 days.
Payment in lieu of notice is commonly used as part of settlement agreements and negotiated exits. It will be important to understand that any settlement payment takes account of all of your entitlements that apply, such as PILON or any other figures such as redundancy pay and holiday pay.
If you have been asked to discuss or sign a settlement agreement, take legal advice. The agreement will not be legally binding on your employer unless you have taken independent advice on the terms of the agreement. DavidsonMorris are experienced employment law specialists offering guidance and support to employers with all aspects to dismissal and entitlements on termination of an employment contract. It is a payment made to an employee when dismissed instead of the individual having to work their notice period.
If you wish to place your employee on garden leave you should ensure that there is a contractual right to do so. If you do not, you may be in breach of the employment contract if you send your employee home with no work, even if they receive full pay.
You can use a garden leave provision rather than payment in lieu of notice if you wish to remove an employee from your workplace but also prevent them from working for a competitor or soliciting your customers or employees for a period of time. If you are considering dismissing an employee in this way, or you would like to discuss the clauses in your employment contracts, you can contact our Employment team by calling or emailing employment warnergoodman. To receive regular Employment Law updates from the team regarding recent tribunal cases and legislation updates, you can subscribe to our weekly Employment Law Newsletter by completing our subscription form or emailing us at events warnergoodman.
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