Pay in lieu of notice: what it is, how much, and tax

What is pay in lieu of notice?

When a job ends, there is normally a notice period. “Notice pay” is simply your pay for that period, whether you work it or not.

Pay in lieu of notice (often called PILON) is different. Your employer ends your job straight away and pays you for the notice period instead of having you work it.

It is not the same as garden leave. On garden leave, you are still employed during your notice. Your employer may ask you not to come into work, or to work at home or in another place, and you get the same pay and contractual benefits. With PILON, your employment ends straight away.

Can my employer pay me instead of letting me work my notice?

GOV.UK sets out two cases:

• Your contract has a PILON clause. Your employer can end your employment without notice and pay you instead.
• Your contract says nothing about it. Your employer can still offer it. If you accept, you should get full pay and any extras that are in your contract.

The same applies if you resign: GOV.UK says you can only get payment in lieu if it is in your contract or you agree to it.

How much notice am I owed?

The law sets a minimum notice that an employer must give an employee ERA 1996, s.86(1):

Continuous service when notice is given	Minimum notice from your employer
Less than 1 month	None in the law (check your contract)
1 month to less than 2 years	1 week
2 years to less than 12 years	1 week for each full year
12 years or more	12 weeks

Your contract can give you more, never less s.86(3). The notice owed is the longer of the two.

Some points to know:

• These minimums are for employees. If you are a worker but not an employee, only your contract counts.
• Your employer does not have to give notice if it dismisses you for gross misconduct s.86(6). If you dispute that finding, a calculator cannot decide it.
• The calculator counts your full years of service on the day you received notice.

How much should PILON be?

GOV.UK says you get all of the basic pay you would have received during the notice period. You may also get extras, such as pension contributions or private health insurance, if they are in your contract.

For notice pay, GOV.UK uses the average you earned per week over the 12 weeks before your notice period started. If your pay is the same every week, that is simply your weekly pay.

The figures are gross, before tax and National Insurance.

Worked example: £4,200.00

• Started work on 1 February 2019.
• Received notice on 1 July 2026. The notice was neither worked nor paid.
• The contract says nothing about notice.
• Pay: £600 a week, gross.

1. Full years of service on 1 July 2026: 7.
2. Legal minimum: 1 week for each full year, so 7 weeks.
3. Notice pay due: 7 × £600 = £4,200.00.

If the employer had paid only 4 weeks, the shortfall would be 3 × £600 = £1,800.00.

When the contract gives more: £9,750.00

• Started work on 1 June 2013. Received notice on 1 July 2026, paid in lieu, and left the same day.
• The contract gives 3 months’ notice. Pay: £3,250 a month.

	Notice	Ends
Legal minimum (13 full years, so the 12-week maximum)	12 weeks (84 days)	23 September 2026
Contract	3 months (92 days)	1 October 2026

The contract gives the longer notice, so it applies: 3 × £3,250 = £9,750.00.

When the notice is in months and you are paid monthly, the calculator counts months of pay. The law does not set a method for converting monthly pay here, so check the result against your contract.

Is pay in lieu of notice taxable?

Yes. Since 6 April 2018, all pay in lieu of notice is taxed and subject to Class 1 National Insurance, like normal pay. It makes no difference whether your contract has a PILON clause.

HMRC calls the taxable part post-employment notice pay. Even if a payment is called something else, such as compensation, the part that matches the basic pay for the notice you did not work is taxed as pay. It does not benefit from the £30,000 tax-free threshold that applies to some termination payments ITEPA 2003, s.403.

Statutory redundancy pay is different: GOV.UK says it is not taxable under £30,000. See is redundancy pay taxed?.

PILON and redundancy pay

If you are made redundant and paid in lieu of notice, the law can count your service up to the date your statutory notice would have ended s.145(5). That can add a full year to your redundancy pay, or bring you up to the 2-year threshold.

This later date does not move the deadline for a written claim for redundancy pay. The redundancy pay guide explains both points.

What if my notice pay is missing or short?

Start with your final payslip. Look for a line for notice or PILON, and check the number of weeks and the weekly rate.

If it is missing or short:

1. Put it in writing. Set out the notice owed, what was worked or paid, and the shortfall. Ask for payment by a set date.
2. Raise a grievance if you prefer, or if you are still employed. See the grievance letter guide.
3. Contact Acas for early conciliation before any tribunal claim.

Unpaid notice is usually treated as a breach of contract. Which legal route fits a given case is a legal question that this guide does not answer.

Mind the time limit. For a breach of contract claim, business.gov.uk and Acas say the limit is 6 months minus 1 day if your contract ended on or after 1 October 2026 in England and Wales, or on or after 9 November 2026 in Scotland. Before those dates, it is 3 months minus 1 day. If you are unsure, work to the earlier date and act early. The tribunal time limits guide shows how to count it.

If your employer is insolvent

The government’s Redundancy Payments Service can pay statutory notice pay, not contractual notice. The week is capped at £751, and benefits you received, or could have received, are deducted. You apply online after your redundancy pay claim, with a separate reference number. GOV.UK explains the steps, and the Redundancy Payments Service guide covers what to do when an employer will not pay.

Northern Ireland

This guide covers England, Wales and Scotland. Northern Ireland has its own legislation and time limits. See nidirect.

Next steps

1. Check, free. The notice pay calculator compares the legal minimum with your contract, counts the notice worked or paid, and shows any shortfall. The final pay checker puts it next to your wages, holiday pay and redundancy pay.
2. Claim in writing. If money is missing, you can prepare a final pay claim letter yourself, with the calculation set out: £9, or £19 with a dated follow-up letter and reminders. If redundancy pay is also missing, the redundancy pay claim letter covers both.
3. Next step. A free Acas preparation sheet lists what Acas will ask, and the early conciliation guide explains the steps. Acas, Citizens Advice, a trade union or a solicitor can also help you.