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Understanding PILON: Payment in lieu of notice

In dismissal situations there's plenty of scope for confusion surrounding pay, notice and termination of employment. Mistakes could be costly, and when it comes to payment in lieu of notice (PILON), having an up-to-date and clearly expressed contract could be the difference between a mutually respectful parting of ways and an ugly scene at a tribunal.

PILON is a payment made to an employee when employment is terminated without notice, instead of the employee working through a notice period and receiving pay in the normal way. It is different from 'gardening leave', in which the employee is still in employment during the notice period and is paid during that period, even though he or she is not present at work.

How an employer approaches PILON will usually depend on what provision has been made for it in the contract of employment. In some instances, a contract may stipulate that termination can be made immediately by making a payment in lieu of basic salary for the notice period. Benefits and other extra costs that would have accrued during the notice period may not need to be paid. But employers are generally required to pay benefits and any extras when the contractual provision for PILON doesn't specify what the pay should be, or if there is no contractual clause for PILON.

Without contractual provision, a termination of employment with PILON is likely to be a breach of contract. Usually the employer would compensate for this by including all the remuneration and benefits the employee would have been entitled to during the notice period. To avoid later disagreement, some employers include a payment for any holiday that may have accrued during the period too, even though they may not technically be required to.

There's some confusion about when the termination date falls in a PILON situation. To avoid disputes, it's best to make this clear in the contract, whether it's the date notice of termination is given, or the date the PILON is made, or indeed the end of what would have been the notice period. Some employers prefer to give notice of termination and make the PILON at the same time so that there are no misunderstandings.

In a dismissal for gross misconduct, PILON is not normally paid.

Acas offers plenty of advice and guidance on Terminating employment - notice periods and pay, including best practice advice on Giving notice and notice pay. Acas also provides training on Contracts and terms and conditions.

Visit the Acas Training and Business Solutions page for more information.

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