Payment in lieu of notice (PILON): what UK employees get

Somewhere near the back of your employment contract there is probably a sentence saying your employer may end your employment "with immediate effect by making a payment in lieu of notice". Most people skim past it. Then, years later, it turns out to be the sentence that decides how their job ends: on what day, with how much money, and with which restrictions still hanging over them.

Payment in lieu of notice (PILON) means your employer ends your employment immediately and pays you for the notice period you would otherwise have worked. Gov.uk puts the key rule in one line: you can only get payment in lieu if it is in your contract or you agree to it.

This guide covers when an employer can use PILON, what the payment has to include, how it is taxed, and what to look for in the clause before you sign anything.

Key takeaways

PILON ends your employment straight away. You are paid for your notice period instead of working it (gov.uk).

Your employer can only use PILON if your contract contains a PILON clause or you agree to it. Without either, forcing it is a breach of contract.

The payment must cover full pay for your notice period. Whether bonus, commission and benefits are included depends on the exact clause wording (Acas).

PILON is taxed as normal pay. Income tax and National Insurance come off as if you had worked the notice; the £30,000 tax-free rule for termination payments never applies to notice pay.

Restrictive covenants normally survive a lawful PILON, and any post-termination restrictions start running from the day your employment ends.

What is payment in lieu of notice (PILON)?

Payment in lieu of notice, usually shortened to PILON, is a payment your employer makes instead of letting you work your notice period, and it ends your employment on the spot. You stop being an employee that day: no more salary accruing, no more holiday building up, no more access to the office or systems.

One exception matters. For working out how long you have been employed for unfair dismissal purposes, section 97(2) of the Employment Rights Act 1996 adds your statutory minimum notice on to the date you actually left, and your employer cannot shorten that by paying you in lieu. It does not rescue you if your employer was genuinely entitled to dismiss you on the spot for gross misconduct. It rarely changes anything today, but from January 2027 the unfair dismissal qualifying period drops to six months, so for someone let go close to that mark the added weeks can be the difference between having a claim and not.

The right to do this usually lives inside the termination section of your contract, in wording like "the Company may, at its absolute discretion, terminate your employment with immediate effect by paying you a sum in lieu of notice". If you want to understand that whole section of your contract, our termination clause guide walks through it line by line.

Employers like PILON for practical reasons. It gets a departing employee away from clients, colleagues and confidential information immediately, without paying them to sit at home for months the way garden leave does. For you, the effect is more mixed: you get your notice money up front and you are free to move on, but you also lose everything that came with still being employed.

Can my employer force PILON on me?

Only if your contract contains a PILON clause, or you agree to it at the time. Gov.uk states this directly: "You can only get payment in lieu if it's in your contract or you agree to it. If you do not agree to it, you can work out your notice period."

Where a clause exists, the balance of power shifts. Acas confirms that, depending on the wording, the employer might be able to insist on payment in lieu. A well-drafted clause gives them the choice, not you. You cannot demand PILON because you would rather leave early, and you usually cannot refuse it because you would rather work.

So the first question is never "what are my PILON rights in general". It is "what does my contract actually say". The answer changes everything that follows.

What happens if there is no PILON clause in my contract?

Without a PILON clause and without your agreement, ending your employment immediately with a payment is a breach of contract. Your employer's lawful options in that situation are to let you work your notice or to put you on garden leave if the contract allows it.

There is a twist worth knowing about. An employer who ends the contract in breach can put its own post-termination restrictions at risk: courts have long held that an employer cannot break the contract and then insist you keep honouring the restrictive covenants in it. That is one reason nearly every professionally drafted contract now includes a PILON clause, and it is also why, if you are ever dismissed with immediate effect and no clause exists, the enforceability of your non-compete is a question worth putting to a solicitor before you assume you are bound.

None of that makes a missing clause good news for you at signing time. It simply means the clause is there for the employer's protection, so you should read what it commits them to paying.

How much PILON pay should I get?

At minimum, full pay for the notice period you were entitled to. Acas is explicit that the employer must give you full pay for your notice period, and that period is whichever is longer:

Your contractual notice, whatever you agreed, commonly one month and often three or six in senior roles.
The statutory minimum under section 86 of the Employment Rights Act 1996: one week once you have worked a month, then one week per full year of service from two to twelve years, capped at twelve weeks.

The contested ground is everything beyond basic salary. During a worked notice period, you keep earning bonuses and commission unless your contract says otherwise, and your benefits continue. A PILON clause, however, often defines the payment as "basic salary only", which quietly strips out pension contributions, commission, bonus eligibility and benefits for the notice months. On a package where commission or bonus is a large slice of pay, a salary-only PILON exit costs you real money compared with working the same notice.

Holiday follows the termination date: you must be paid for holiday you accrued but had not taken by the day employment ends, and you stop accruing from that day.

Is PILON taxed?

Yes, in full. PILON is treated as normal earnings, so income tax and National Insurance are deducted just as they would have been if you had worked the notice period.

The statutory mechanism has a name, post-employment notice pay or PENP, and it is what HMRC uses to work out how much of a leaving package counts as notice. People often mix this up with the £30,000 tax-free allowance they have heard applies to termination payments. That allowance can apply to genuinely compensatory elements of a leaving package, such as some redundancy payments, but never to notice pay. Since April 2018, every PILON has been taxable this way. If a settlement offer is presented to you with the notice element counted as "tax free", the sums are wrong, and it is worth querying before you sign anything. Our guide to what to check in a UK settlement agreement covers the rest of the package alongside it.

PILON vs garden leave: what is the difference?

With PILON your employment ends immediately; on garden leave you stay employed, on full pay, until your notice expires. That single difference drives all the practical ones:

Starting your next job: After PILON you are free to start straight away, subject to any restrictive covenants. On garden leave you cannot, because you still work for your current employer.
Benefits and holiday: PILON ends them at termination. Garden leave keeps benefits running and holiday accruing to the end of notice.
The restriction clock: Post-termination covenants start immediately after PILON. On garden leave they only start when notice expires, though many contracts offset garden leave time against the covenant period.

We keep the full side-by-side table, including pay, benefits and covenant treatment, in our garden leave guide.

What should I check in my contract's PILON clause?

Five things decide what a PILON exit would actually cost you, and all five are visible in the wording before you sign.

Whether the clause exists, and who holds the choice: "The Company may terminate with immediate effect by paying in lieu" gives them the option. Nothing in the contract gives you one.
What the payment covers: Basic salary only, or salary plus benefits, pension, bonus and commission? This is the single most expensive difference between two otherwise similar clauses.
When it is paid: A lump sum with your final payslip is standard. Wording that lets the employer pay in instalments keeps you waiting for money you are owed on day one.
What happens to your restrictions: Check whether the termination clause confirms the covenants survive a PILON exit and when their clock starts. If you are weighing up an offer, this interacts directly with how soon you can join a competitor.
How it sits with the rest of the exit terms: Notice length, any garden leave clause and PILON work as one system: together they define the slowest and fastest ways your employment can end. Our guide to what to check in a UK employment contract covers the rest of that system.

If you would rather not decode the drafting yourself, upload the contract to Ookulli's employment contract review. It flags the PILON, notice, garden leave and restriction clauses, explains what each one means for you in plain English, and cites the exact clause and the UK law it was checked against, so you can see the reasoning instead of taking an AI's word for it. And if your instinct was to paste the contract into a chatbot, read about the privacy consequences of uploading your offer letter to ChatGPT first.

Payment in lieu of notice FAQ

Can I refuse payment in lieu of notice?

Usually not, if your contract has a PILON clause whose wording lets the employer insist. If there is no clause, yes: you can decline the offer and work your notice period, or agree terms that suit you better. Your agreement is exactly what the employer needs in that situation, which gives you something to negotiate with.

Does PILON include holiday pay?

It must include pay for holiday you had accrued but not taken by your termination date. It does not include holiday you would have accrued during the notice period itself, because your employment, and therefore your accrual, ends on the day you leave.

Do restrictive covenants still apply after PILON?

After a lawful PILON made under a contractual clause, yes, they normally survive, and post-termination restrictions start from your termination date. If you were dismissed with immediate effect without a clause or agreement, the employer's breach can undermine its ability to enforce them, but that is a question for a solicitor with the contract in front of them, not an assumption to act on.

Is PILON the same as redundancy pay?

No. Notice pay and statutory redundancy pay are separate entitlements. In a redundancy you can be owed both: your redundancy payment and either worked notice or a payment in lieu of it.

When should PILON be paid?

Whenever the clause says, which is normally as a lump sum with your final pay. If the money does not arrive, raise it in writing first; gov.uk notes that unresolved notice pay disputes can go through the company grievance procedure and, if needed, to an employment tribunal as a breach of contract claim.

This article is legal information, not legal advice. PILON disputes turn on the exact wording of your contract, so if you are mid-exit or negotiating a settlement, have a qualified employment solicitor look at the documents.

Just been handed an offer, or an exit? Upload the contract to Ookulli and get the PILON, notice and restriction clauses flagged and explained against UK law in minutes. Your first contract review is free, full reviews start from £10 per document with no subscription, and every review carries a 30-day money-back guarantee.